Clearing the Mist: Should a Jurisdictional Challenge raised under Section 16 of India’s Arbitration and Conciliation Act, 1996 be decided as a preliminary ground?

Keywords: jurisdiction, preliminary ground, tribunal discretion, award

Introduction

Similar to Article 16 of the UNCITRAL Model Law (“Model Law”), Section 16 of the Arbitration and Conciliation Act, 1996 (“the Act”) empowers the arbitral tribunal to rule on its own jurisdiction, following the principle of Kompetenz-Kompetenz. However, unlike Article 16(3) of the Model Law, which provides that a plea challenging the jurisdiction of the tribunal may be decided either as a preliminary issue or in an award on the merits, Section 16 of the Act is silent on the stage at which such a plea should be decided.

Given the above, the question that arises is, at what stage should the arbitral tribunal adjudicate upon the jurisdictional objections raised under Section 16 of the Act. While the courts have taken divergent views on whether jurisdictional issues must be determined at a preliminary stage or a later stage, the Delhi High Court (“Delhi HC”) in its recent decision in Surender Kumar Singhal v. Arun Kumar Bhalotia (“Surender Singhal”) has attempted to clarify the position of law.

This post highlights the legal precedents on this issue, briefly analyzes the recent decision of Surendra Singhal and its implications on the adjudication of jurisdictional challenges.

The Judicial Trend

In 2006, the Supreme Court (“SC”) in McDermott International Inc. v. Burn Standard Co. Ltd. (“McDermott”) held that ‘the question of jurisdiction under Section 16 of the Act is required to be determined as a preliminary ground.’ However, the Court in holding the aforesaid did not provide any basis or reasoning for the same.

Subsequently, in 2007, the SC in Maharshi Dayanand University v. Anand Coop. L/C Society Ltd.  (“Maharashi”) took a contrary view wherein it held that jurisdictional challenges need not be decided as a preliminary issue and the same must be determined necessarily by the tribunal while proceeding to finally pronounce the award. Several judgments of the Delhi High Court subsequent to Maharshi, including Roshan Lal v. Parasram Holdings, SAIL v. Indian Council of Arbitration, and Pankaj Arora v. Avv Hospitality, have also affirmed that no infraction of law would be committed if the tribunal does not decide such issues at the preliminary stage.

Additionally, in Kvaerner Cementation India Limited v. Bajranglal Agarwal ,the SC recommended that the tribunal should dispose of the jurisdictional issue as a preliminary issue ‘so that it may not be necessary to delve into the entire gamut of arbitral proceedings.’ Therefore, it appears that while the SC has advised that jurisdictional issues should be decided at the outset, the same has not been mandated by it. However, it is pertinent to note that Kvaerner is a short order relating to an anti-arbitration injunction and does not discuss the issue at hand in detail.

Observations in Surender Singhal

In Surender Singhal, the Delhi HC considered if the tribunal can postpone the decision concerning jurisdictional objections raised under Section 16 of the Act. Relying upon the decision in McDermott, the Court held that the jurisdictional objections should be decided at the earliest. However, it made its conclusion conditional by observing that the same cannot be a hard and fast rule, and the Tribunal must attempt to decide the jurisdictional objections as soon as possible, as a preliminary ground, depending on the facts and circumstances of each case. Consequently, given that jurisdictional objection is required to be raised at the inception itself, the Delhi HC held that such objections must be decided by the Tribunal with a sense of urgency.

Additionally, the Delhi HC enlisted factors, albeit non-exhaustive, which may be considered by the tribunal while adjudicating jurisdictional objections:

• jurisdictional objections should be heard at the inception if the same can be decided based on admitted documents on record;

• if further inquiry is required into the matter, the Tribunal can frame a preliminary issue and proceed to decide the same as soon as possible;

• if the evidence is required to be led, the Tribunal may direct limited evidence to be led on the jurisdictional issue and decide the same based on such evidence;

• if deciding such objections requires detailed evidence (both written and oral), then after the evidence is concluded, the Tribunal may adjudicate the objections under Section 16 of the Act first before passing the final award.

Analysis

In contrast to the ruling in McDermott wherein the SC had stated that the jurisdictional issue is required to be decided by the Tribunal as a preliminary ground, both the SC and Delhi HC in their previous decisions observed that it is not mandatory for the tribunal to adjudicate upon jurisdictional objections at the preliminary stage. However, the decision in Surender Singhal has attempted to steer a “middle course” between the two views. While the Delhi HC in the said case has placed reliance on McDermott, it has taken a comprehensive approach which considers both the scenarios: (a) jurisdictional objections should ideally be decided as soon as possible, as a preliminary ground; and (b) in certain instances, the decision on such objections may be delayed depending upon the requirement of leading evidence. However, the Delhi HC has conclusively held that jurisdictional objections must be decided before passing the final Award, ideally as soon as possible, as a preliminary ground.

As a general rule, jurisdictional objections should be decided as a preliminary ground, especially given that jurisdictional questions go to the very root of the matter and challenge the mandate of the tribunal to adjudicate upon the dispute. For instance, the tribunal should decide such objections at the outset when such objections can be decided without considering the merits. In other words, the tribunal should separate the jurisdictional issue from the merits and decide the jurisdictional issue first. Therefore, if preliminary resolution of jurisdiction challenges is possible, it would be advisable.

In doing so, the tribunal would ensure that the parties would not have to delve into the merits of the case if it upholds the jurisdictional challenge. This would save time and costs and ensure that the party can promptly approach the appropriate forum for resolving such disputes. Additionally, the importance of expeditiously deciding such objections is also in line with the SC’s observation in Gas Authority of India Ltd. v. Keti Construction (I) Ltd., wherein it was held that raising jurisdictional objections at the threshold ensures that the tribunal can take remedial measures immediately to reduce the time and expense involved in hearing of the matter. Thus, it appears that the purpose of raising jurisdictional objections at the threshold is also to ensure that the same is dealt with by the tribunal expeditiously.

However, in certain cases, it may be viable to decide jurisdictional objections at a later stage. For instance, the International Arbitration Practice Guideline on Jurisdictional Challenges (“Practice Guideline”) provides that in situations wherein the: (a) substantive issue(s) is closely related to the jurisdictional issues; or (b) jurisdictional issues are raised as a tactic to delay proceedings, the tribunal can continue with the proceedings and decide the jurisdictional issues later. In these scenarios, the tribunal should have the discretion to decide if such objections should be adjudicated upon at a later stage. Therefore, the Delhi HC in Surender Singhal has rightly observed that deciding jurisdictional objections as a preliminary ground would depend upon the facts and circumstances of each case, leaving room for ample discretion in the hands of the tribunal to assess on a case-to-case basis.

Conclusion

Given the preceding arguments, we comprehend that the Delhi HC in Surender Singhal has taken a reasonable approach between the discretion provided to the tribunal in deciding the stage for dealing with jurisdictional objections and the importance of deciding such objections with urgency. While providing the tribunal with the “discretion” to decide the timing for adjudicating upon jurisdictional objections, it suggests that such power is not unbridled, and such objections should ideally be decided at the earliest possible. This would ensure that the ritbunal does not keep the decision on jurisdictional issues in abeyance until the end of the dispute or has absolute discretion to postpone such decision, especially in cases where such issues could very well be decided at the earliest. Overall, it is a welcome judgment and would ensure expeditious and effective disposal of jurisdictional issues.

Satya Jha and Saranya Lal are both graduates of West Bengal National University of Juridical Sciences. Both the authors are currently working as associates in reputed Indian law firms.

The views and opinions expressed in the article are those of the Author(s) solely and do not reflect the official position of the institution(s) with which the Author(s) is /are affiliated. Further, the statements of the Author(s) produced herein should not be construed as legal advice.