INTRODUCTION
What is arbitration?
Arbitration is a form of Alternative Dispute Resolution (ADR) which is opted by the parties for an amicable and enforceable settlement of the dispute. The procedure of arbitration involves a subject-matter expert appointed either through mutual consent of the parties or by a competent court.
The parties may decide to resolve a dispute through arbitration while executing a contract. Arbitration is the resolution of disputes through an expert on the subject matter appointed either by the mutual consent of the parties or by the Chief Justice designate of the High Court in case of the disputes up to the specified value of pecuniary jurisdiction for domestic arbitration, and appointed by the designate of the Chief Justice of the Supreme Court of India in the matters pertaining to international arbitration.
How is arbitration invoked?
Arbitration can be invoked wherein the parties are enabled to resolve the disputes amicably arising out of the contract wherein arbitration is envisaged in the contract. A reference notice under Section 11 of the Arbitration and the Conciliation Act, 1996 is issued by the aggrieved party and if the other party does not reply or accepts the arbitration nominated by the aggrieved party, the aggrieved party can apply before the High Court of the Supreme Court as per the category of their case and the appropriate court appoints the arbitrator. The arbitrator so appointed under the Act is called an Arbitral Tribunal and the parties meet on the first hearing to decide the procedure regarding the arbitration and thereafter the claim and counter-claim is filed, and so on and so forth.
Where to invoke arbitration?
The arbitration clause in the contract is considered as the arbitration agreement, and generally both in the contract or the arbitration agreement, the seat of arbitration agreed upon by both the parties is mentioned. It is pertinent to note that for seat of the arbitrator, it is not necessary to follow Section 20 of the Code of Civil Procedure, 1908. The seat can be irrespective of where the cause of action lies, or the respondent resides.
Sometimes the parties prefer institutional arbitration over ad-hoc arbitration i.e. institutions like ICA, SIAC etc. In such circumstances, the place of arbitration is as per the institutional guidelines, or the rules of that particular institution. For example, Rule 21 of the SIAC Rules 2016 lays down that the parties are free to agree on the seat of arbitration, failing which the seat of arbitration shall be determined by the tribunal.
When neither the seat of the arbitration is mentioned nor the parties have agreed for institutional arbitration, then the Code of Civil Procedure, 1908, can be invoked at the place of the execution of the contract. As per Section 11 of the Arbitration and Conciliation Act, 1996, the High Court and the Supreme Court have jurisdiction for the appointment of the arbitrator. Sometimes the aggrieved party is at the risk of damage or destruction of the property and seeks interim relief in order to restrain the opposite party which is filed under Section 9 of the Act. The same needs to be filed in the same jurisdiction and place where Section 11 can be filed. The aggrieved party may also move Section 11 and Section 9 simultaneously in the same petition. There can also be ambiguity regarding the terms of reference, however, the court appoints the arbitrator and as per Section 16 of the Act, the arbitrator is empowered to rule its own jurisdiction.
Why should a person go for arbitration, and for what matters?
Arbitration is increasingly becoming the popular choice among the parties for dispute resolution, as it offers several benefits over litigation. Arbitration is generally much faster than litigation, since the parties have more control over the procedure in arbitration since the same is usually decided on the first sitting of the Arbitral Tribunal, after amicable considerations of all the parties involved. Arbitration is also more flexible than litigation since the parties can agree upon the seat of the arbitral tribunal, the governing laws, and rules towards the admissibility of evidence etc. The parties to an arbitration can amicably decide upon a completely different law of another country irrespective of the cause of action, and the residence of the parties. Arbitration also proves to be more private than litigation since the proceedings are confidential, and provide a better sense of security to the parties involved. The Arbitrators appointed are generally experts in the field of law or subject-matter-expert relevant to the disputes regarding which the parties have sought arbitration. Appointment of an expert ensures far more accurate resolution of disputes.
In India, only the civil suits, of non-criminal nature can undergo arbitration. The courts may also refer a dispute to arbitration as the same is empowered under Section 8 of the Act. The same was affirmed in Haryana Telecom v. Sterlite Industries. The court held that the competence of an arbitral tribunal can be one of the grounds for the grant of reference under Section 8. In Booz-Allen v. SBI Home Finance, the Court accepted the proposition despite the explicit grounds provided under Section 8 on which reference can be made, as well as the implicit ground of competence of the arbitral tribunal mentioned in the same Section.
What will be the jurisdiction during the lack of arbitration clause/agreement?
Section 19 of the Arbitration and Conciliation Act, 1996 states that the arbitral tribunal is not bound by the Code of Civil Procedure, 1908, or the Indian Evidence Act, 1872. The parties are free to agree on the procedure to be followed during the arbitral proceedings. In the absence of an agreement, the arbitral tribunal has the authority to conduct the proceedings as it deems appropriate, subject to the provisions of the Act. This includes determining the admissibility, relevance, materiality, and weight of the evidence presented.
Regarding the place of arbitration, Section 20 of the Arbitration and Conciliation Act, 1996 provides the parties with the freedom to agree on the location. If there is no agreement on the place of arbitration, the arbitral tribunal will determine it based on the circumstances of the case and the convenience of the parties. The tribunal may choose to meet at various locations for consultations, witness hearings, expert testimonies, or document inspections. The choice of the place of arbitration can significantly impact the applicable law and the convenience of the parties involved.
The Supreme Court of India, in the case of Kerala State Electricity Board and Anr. vs. Kurien E. Kathilal and Anr., emphasized that the court should not refer parties to arbitration in the absence of a written consent, such as a joint memo or joint application, even if there is no arbitration agreement between the parties. Oral consent from the counsel alone is insufficient for such a reference.
Furthermore, the distinction between the seat and the venue of arbitration is important. The seat of arbitration refers to the legal place where the arbitration is deemed to be conducted and determines the applicable law. On the other hand, the venue is the physical location where hearings, consultations, and other proceedings take place. The Supreme Court, in the case of Indus Mobile Distribution Private Limited v. Datawind Innovations Private Limited and Ors., clarified that the seat of arbitration provides exclusive jurisdiction to the courts and can be determined by the agreement of the parties.
Courts have also held that the principles of jurisdiction, as established in general law and arbitration jurisdiction law, apply to arbitration-related disputes. The jurisdiction of a civil suit is generally determined based on the defendant's residence or where the cause of action arises. The same principles can be considered in arbitration matters, even though the application of the Code of Civil Procedure is precluded in arbitration cases.
In the absence of an arbitration clause or agreement, the courts may refer the parties to arbitration only if there is a written consent in the form of a joint memo or joint application. The determination of the seat of arbitration is crucial, as it defines the legal framework, while the venue of arbitration can be different and determined by convenience. The principles of jurisdiction established in general law and arbitration jurisdiction law may guide the determination of jurisdiction in arbitration-related disputes.
What is the pecuniary jurisdiction of arbitral tribunals and how is it calculated?
Under Section 11 of the Arbitration Act, the appointment of arbitrators is addressed. This section outlines various options available to parties involved in a dispute for the appointment of arbitrators. The parties have the freedom to agree on a specific procedure for appointing arbitrators. Alternatively, they can approach the Supreme Court or the respective High Court to appoint an arbitrator on their behalf.
In support of this provision, the petitioner referred to the judgments of the Gujarat High Court in the case of Nilesh Ramanbhai Patel and Ors. v. Bhanubhai Ramanbhai Patel and Ors2 and the Bombay High Court in Cabra Instalaciones Y Servicios, S.A. v. Maharashtra State Electricity Distribution Company Limited3. These judgments held that the power to extend the mandate of the arbitrator lies exclusively with the Supreme Court or the High Court, as applicable, under Section 11 of the Act.
Additionally, in the case of National Seeds Corporation Ltd. vs. Ram Avtar Gupta on 14 December 2021, it was established that the interest claimed until the date of invoking arbitration should be considered under Section 12(2) of the Commercial Courts Act to determine the "Aggregate Value" of the claim. In the present case, it is undisputed that when such interest is included, the "Aggregate Value" of the claim exceeds ₹2,00,00,000/- (Rupees two crore), which places the petition under Section 34 of the Act beyond the pecuniary jurisdiction of the learned District Court.
Hence, Section 11 of the Arbitration Act provides a framework for the appointment of arbitrators, granting parties the autonomy to agree on a procedure or seek assistance from the courts. The judgments cited by the petitioner support the understanding that the power to extend the mandate of the arbitrator lies with the Supreme Court or the High Court, as per Section 11 of the Act.
As per the Act, the pecuniary jurisdiction for appeal is same as in a civil suit. For example, in Delhi the suits up to the value of 3 lakhs is filed before the Senior Civil Judge therefore if any award is valued less than 3 lakhs, the objections under Section 34 is to be filed before the SCJ. However, unlike pecuniary jurisdiction in civil suits, the pecuniary jurisdiction in the commercial suits (the award of the arbitrator is termed as the commercial suit before the court) before ADJ is up to 1 crore whereas in civil suits it is up to 2 crore. Beyond 1 crore it goes to High Court whereas civil suit, the jurisdiction of HC is beyond 2 crore.
Challenging the jurisdiction laid out in the arbitration clause
The term "jurisdiction" has been authoritatively defined by a seven-Judge Bench of the Supreme Court in A.R. Antulay v. R.S. Nayak. According to the ruling, jurisdiction refers to the authority or power of a court to handle a matter and issue a binding order based on the facts presented. However, such jurisdiction can only be exercised when provided for in the Constitution or the laws enacted by the legislature. The power to create and expand jurisdiction lies within the legislative domain and not with the courts. Consequently, a court lacking inherent jurisdiction would render any decision passed by it as coram non judice, as a court cannot confer jurisdiction upon itself. This raises the question of whether parties can waive such inherent lack of jurisdiction and at what stage such a plea can be raised.
In the early case of Ledgard v. Bull, it was established that while consent or waiver can cure a defect in jurisdiction, it cannot remedy an inherent lack of jurisdiction. Halsbury's Laws of England also states that if a court lacks inherent jurisdiction due to statutory limitations, neither the acquiescence nor the express consent of the parties can confer jurisdiction upon the court. Moreover, when an authority exercises jurisdiction it does not possess, its decision becomes null and void in law. Therefore, a decision made by an authority lacking jurisdiction is non est, and its invalidity can be raised whenever an attempt is made to enforce it, regardless of whether the plea of invalidity was raised at an earlier stage. Relevant decisions of the Supreme Court include Harshad Chiman Lal Modi v. DLF Universal Ltd. and Chiranjilal Shrilal Goenka v. Jasjit Singh.
The Delhi High Court, in Kanodia Infratech Ltd. v. Dalmia Cement (Bharat) Ltd. (Kanodia Infratech), held that the lack of jurisdiction of an arbitrator unilaterally appointed cannot be raised for the first time in a Section 34 challenge to an arbitral award.
Moving on to Section 34 of the Arbitration and Conciliation Act, 1996, this section outlines the grounds upon which an arbitral award can be set aside. These grounds include situations where the arbitrator was not properly appointed, the award was made without the consent of the parties, the award is in conflict with the public policy of India, or the award violates the fundamental notions of morality or justice. An application to set aside an arbitral award must be made within three months from the date of the award. The court may adjourn the proceedings to give the arbitral tribunal an opportunity to rectify any flaws in the award.
It is important to note that the grounds for setting aside an arbitral award are narrowly construed. The court will not set aside an award simply because it disagrees with the arbitrator's decision. The award will only be set aside if the court finds that the arbitrator has committed a serious error that has deprived the parties of their right to a fair hearing.
Challenging the competence of the Arbitral Tribunal w.r.t. Jurisdiction
Section 16 of the Arbitration and Conciliation Act, 1996 deals with the "competence of an arbitral tribunal to rule on its jurisdiction" and encompasses the doctrine of Kompetenz-Kompetenz. It establishes the authority of an arbitral tribunal to decide on its own jurisdiction, without interference from civil courts, except in limited circumstances outlined in the Act. The Act provides opportunities for a party to challenge the jurisdiction of an arbitral tribunal on various grounds. However, in most cases, a party intending to raise a jurisdictional challenge in an arbitration proceeding must file an application under section 16 of the Act before the arbitral tribunal.
Section 16 has two main aspects. Firstly, it affirms that the arbitral tribunal has the power to determine its own jurisdiction without resorting to civil courts. Secondly, it prohibits the courts from deciding on jurisdictional issues until the arbitral tribunal has made a ruling on the matter. Once the tribunal rules on its competence and chooses to proceed with the proceedings, the parties cannot challenge this ruling until an award is issued by the tribunal. In the case of Union of India v. East Coast Boat Builders, the Court observed that the legislative intent of the Act was to not provide an appeal or interfere with the proceedings of the arbitral tribunal. If the tribunal rules in favor of its jurisdiction, the party aggrieved by this decision can either file an appeal under section 37 of the Act or wait for the completion of the proceedings and challenge the jurisdiction of the arbitral tribunal while challenging the award under section 34 of the Act.
Sub-clause 2 of section 16 has two components. First, the last opportunity to challenge the jurisdiction of the tribunal is before submitting a statement of defense. Second, merely participating in the appointment of an arbitrator does not necessarily preclude a party from raising a jurisdictional plea. In the case of MSP Infrastructure v. M.P. Road Development Corporation, the Madhya Pradesh High Court allowed a party to amend its pleadings during a challenge to the award under section 34 to include the ground for jurisdictional challenge. However, the Supreme Court later set aside this view, holding that based on the Act, it is clear that the objection to jurisdiction should be raised after the submission of the statement of defense.
However, differing views have been taken in cases such as Lion Engineering Consultants v. the State of M.P., where the Supreme Court allowed the objection to the arbitral tribunal's jurisdiction to be raised in a Section 34 Petition before the Court, contrary to the provisions of Section 16 and the objective of minimal court intervention. In the absence of a statutory mandate to clarify this stance, the courts have adopted a flexible approach, often leaving the issue to the discretion of the arbitral tribunal and the civil courts. The flexibility granted to the arbitral tribunal was upheld in the case of Pankaj Arora v. AVV Hospitality, where the Court refused to interpret section 16(5) as a legal mandate for the arbitral tribunal to adjudicate any jurisdictional objection at the outset of a dispute.
In the landmark judgment of United India Insurance Co. Case, the Supreme Court held that limited factual inquiry by the courts can be conducted under Section 11(4) and Section 11(6) of the Arbitration and Conciliation Act, 1996.
In the landmark judgment of M.S. Shariff v. State of Madras, the Supreme Court held that criminal matters should be given precedence over civil proceedings, and civil proceedings should be stayed until the termination of criminal proceedings.
Sections 16(2) and 16(3) of the Arbitration and Conciliation Act, 1996 empower the sole arbitrator to dismiss arbitral proceedings if the tribunal lacks jurisdiction over the matter or if the plea exceeds the scope of its authority.
Execution Jurisdiction of Arbitral Tribunals
Section 36 of the Arbitration and Conciliation Act, 1996 pertains to the enforcement of arbitral awards. It states that an arbitral award can be enforced if the time for filing an application to set aside the award under section 34 has expired, or if such an application has been made and subsequently refused. The enforcement of an arbitral award is carried out in accordance with the provisions of the Code of Civil Procedure, 1908, treating the award as if it were a decree of the court. However, if an application to set aside the award is pending before the court, the enforcement of the award may be stayed by the court until the application is disposed of. Additionally, if the court is satisfied that the award was obtained through fraud or corruption, it may also stay the enforcement of the award.
The Act does not explicitly specify which courts have jurisdiction to execute arbitral awards. However, it is generally understood that the courts listed in Section 48 of the Act, which have jurisdiction to hear challenges to arbitral awards, also have jurisdiction to execute them
In practice, the common approach to executing an arbitral award in India is by filing a petition for execution with the court that issued the award. This petition should be accompanied by a certified copy of the award and a copy of the arbitration agreement. The court will then issue an order directing the judgment debtor to satisfy the award amount. If the judgment debtor fails to comply with the order, the court may resort to further enforcement measures, such as asset attachment or wage garnishment.
Regarding the jurisdiction for executing an arbitral award, the Supreme Court clarified in the case of Sundaram Finance Ltd. v. Abdul Samad that an award can be enforced through execution anywhere in the country where the corresponding decree can be executed. There is no requirement to obtain a transfer of the decree from the court that has jurisdiction over the arbitral award.
When it comes to the limitation period for enforcing domestic awards, the Limitation Act of 1963 applies, and it provides a 12-year period for enforcing such awards. However, for the execution of foreign awards, different views have been expressed by the courts. Some courts consider foreign awards as decrees and, therefore, apply the 12-year limitation period. On the other hand, some courts believe that since there is no specific provision in the Limitation Act for executing a foreign award, the residuary Article 137 of the Limitation Act applies, which sets a three-year limitation period. Once the application for execution of a foreign award is determined to be enforceable in India, the decree can be executed within a period of twelve years, as per Article 136 of the Limitation Act.
The jurisdiction for executing an arbitral award is not necessarily limited to the court within whose jurisdiction the arbitration proceedings took place. The Madhya Pradesh High Court and the High Court of Himachal Pradesh held that a transfer of the decree is required for execution in the jurisdiction where the assets are located. However, the Supreme Court clarified in the case of Indus Mobile Distribution (P) Ltd v. Datawind Innovations (P) Ltd. that the jurisdiction of the court under arbitration law is seat-centric, meaning that once the place of arbitration is determined, it is the judicial seat that holds jurisdiction, regardless of where the actions related to the dispute occurred.
In summary, an arbitral award can be executed in any jurisdiction in India where the decree is capable of being executed, without the need for a transfer from the court that has jurisdiction over the arbitration proceedings. The court within whose jurisdiction the judgment debtor resides, carries on business, or where their property is situated has the territorial jurisdiction to enforce the arbitral award.
Appellate Jurisdiction while challenging the Arbitral Award
The appellate jurisdiction lies in the court after the award is passed till the matter is before arbitrator no appeal/objections can be filed against the order of the arbitral tribunal. After the passing of the award, the aggrieved party may challenge the award in the form of the objections under Section 34 of the Act. As per the pecuniary jurisdiction whichever state it applies, else before the civil court in case of domestic arbitration and before the Supreme Court in case of the international arbitral award.
Section 37 of the Arbitration and Conciliation Act, 1996 in India provides for the appellate jurisdiction when challenging an arbitral award. An appeal can be filed under this section from an order that sets aside or refuses to set aside an arbitral award under section 34 of the Act. It's important to note that no second appeal is allowed from an order passed in appeal under section 37. However, a party can approach the Supreme Court by filing a Special Leave Petition under Article 136 of the Constitution of India.
Under Section 37, an appeal shall lie to the court authorized by law to hear appeals from original decrees of the court that passed the order. This includes the following situations: (a) when the court refuses to refer the parties to arbitration under section 8, (b) when the court grants or refuses to grant any measure under section 9, and (c) when the court sets aside or refuses to set aside an arbitral award under section 34. It's important to note that no second appeal is allowed from an order passed in appeal under this section, but this does not affect the right to appeal to the Supreme Court.
In certain cases, where the High Court remands the matter to the concerned District Court or another court for deciding a Section 34 application in accordance with the law and on its own merits, the Supreme Court has held that there was no error committed by the High Court in passing such a judgment and order.
When it comes to applications filed under section 34 of the Act, they are considered summary proceedings. An arbitral award can be set aside only on the grounds specified in section 34(2)(a) and section 34(2)(b). The speedy resolution of arbitral disputes is the underlying reason for enacting the Arbitration and Conciliation Act, 1996, and subsequent amendments have aimed to strengthen this objective. Therefore, in proceedings under section 34, it is generally not necessary to frame issues or take oral evidence since doing so would defeat the objective of speedy resolution. The application to set aside the arbitral award typically relies on the record that was before the arbitrator. However, if there are matters not contained in the record but are relevant to the determination of the issues under section 34(2)(a), they may be brought to the attention of the court through affidavits filed by both parties. Cross-examination of the persons swearing to the affidavits should only be allowed if absolutely necessary, as the truth can generally be determined by reading the affidavits. In exceptional cases where certain matters not contained in the record of the arbitrator are deemed relevant to the determination of issues under section 34(2)(a), the party challenging the award can be permitted to file an affidavit as evidence. However, such permission will be granted only if absolutely necessary.
To file an appeal against an order setting aside or refusing to set aside an arbitral award, the appeal must be made to the High Court within whose jurisdiction the award was made. The appeal must be filed within 30 days of the date of the order. The High Court will then hear the appeal and decide whether to uphold or overturn the order of the lower court. The decision of the High Court is final and cannot be appealed to the Supreme Court. However, a party can still approach the Supreme Court by filing a Special Leave Petition under Article 136 of the Constitution of India. The Supreme Court will exercise its discretion in granting a Special Leave Petition and will only do so if it finds that there is a substantial question of law involved in the case. If the Supreme Court grants the Special Leave Petition, it will hear the case and make a decision on whether to uphold or overturn the decision of the High Court.
Conclusion
Jurisdiction plays a crucial role in the context of arbitration in India. The Arbitration and Conciliation Act, 1996 provides guidelines for determining the jurisdiction for arbitration proceedings and the enforcement of arbitral awards. The seat of arbitration determines the governing law and the courts with supervisory jurisdiction over the arbitration process. The choice of seat is of utmost importance as it determines the procedural and substantive laws that apply. The courts at the seat have exclusive jurisdiction to hear challenges to the arbitral award and can also assist in the appointment of arbitrators and provide interim measures of protection. Furthermore, the Act allows parties to choose a different jurisdiction for the enforcement of arbitral awards, provided that it has a close nexus with the judgment debtor or their assets. The Act also establishes the appellate jurisdiction for challenging arbitral awards and sets out the procedure for filing appeals. While the High Courts have appellate jurisdiction, the Supreme Court can be approached through a Special Leave Petition in certain cases. Overall, understanding the intricacies of jurisdiction is essential for effectively navigating the arbitration process and ensuring the enforceability of arbitral awards in India.