Jain Studios Limited vs Maitry Exports Pvt. Ltd.
2007 Latest Caselaw 2034 Del

JUDGMENT

Sanjay Kishan Kaul, J.

1. A suit was filed seeking to recover money by the respondent against the petitioner in the Mumbai High Court inclusive of principal and interest. The suit was filed in the year 1999 and on 27.2.2006 the parties agreed to refer the disputes, which were the subject matter of the suit, to arbitration. Justice S.N. Variava (Retd.) was appointed as the sole arbitrator to adjudicate the disputes between the parties.

2. On completion of pleadings, the parties agreed that the following two issues be tried as preliminary issues:

(e) Whether the amended claim is barred by law of limitation?

(f) Whether the amended claim falls outside the scope of reference by Order dated 27th February 2006?

3. The learned arbitrator came to the conclusion that a part of the claim was barred by limitation but the remaining part was within time. It was also held that the amendments carried out to the claim were only clarificatory in nature and, thus, did not fall outside the scope of reference of the order dated 27.2.2006. The petitioner aggrieved by the same, has filed the present petition under Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the said Act).

4. It may be stated at the inception itself that the learned arbitrator has labelled the decision as an award on preliminary issues. It is, thus, the submission of learned senior Counsel for the petitioner that the adjudication is in the mode of an interim award and is, thus, subject to challenge under Section 34 of the said Act at this stage.

5. On the other hand, the submission of learned Counsel for the respondent is that the arbitrator having ruled that the matter has to be decided on merits, the decision is one of a category under Section 16 of the said Act and the remedy of the petitioner would only be by way of objections on the final adjudication being done by the learned arbitrator.

6. In order to appreciate the aforesaid contention, it is necessary to reproduce the following provisions of the said Act:

16. Competence of arbitral tribunal to rule on its jurisdiction.

(1) The arbitral tribunal may rule on its own jurisdiction, including ruling on any objections with respect to the existence or validity of the arbitration agreement, and for that purpose,

(a) an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract; and

(b) a decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause.

(2) A plea that the arbitral tribunal does not have jurisdiction shall be raised not later than the submission of the statement of defense; however, a party shall not be precluded from raising such a plea merely because that he has appointed, or participated in the appointment of, an arbitrator.

(3) A plea that the arbitral tribunal is exceeding the scope of its authority shall be raised as soon as the matter alleged to be beyond the scope of its authority is raised during the arbitral proceedings.

(4) The arbitral tribunal may, in either of the cases referred to in Sub-section (2) or Sub-section (3), admit a later plea if it considers the delay justified.

(5) The arbitral tribunal shall decide on a plea referred to in Sub-section (2) or Sub-section (3) and, where the arbitral tribunal takes a decision rejecting the plea, continue with the arbitral proceedings and make an arbitral award.

(6) A party aggrieved by such an award may make an application for setting aside such an arbitral award in accordance with Section 34.

37. Appealable orders. - (1) An appeal shall lie from the following orders (and from no others) to the court authorised by law to hear appeals from original decrees of the court passing the order, namely:

(a) granting or refusing to grant any measure under Section 9;

(b) setting aside or refusing to set aside an arbitral award under Section 34.

(2) An appeal shall also lie to a court from an order of the arbitral tribunal-

(a) accepting the plea referred to in Sub-section (2) or Sub-section (3) of Section 16; or

(b) granting or refusing to grant an interim measure under Section 17.

(3) No second appeal shall lie from an order passed in appeal under this section, but nothing in this section shall affect or take away any right to appeal to the Supreme Court.

7. The said Act came into force in 1996 in supersession of the earlier Indian Arbitration Act, 1940 and one of the objects of the same was to make the arbitral proceedings more expeditious and to restrict the role of the court during the proceedings before the arbitrator. It is in view thereof that appeals were provided under Section 37 of the said Act only on the limited aspects set out therein leaving the remaining matters to be challenged only at the stage of a final award. The aim and object of the legislature was that the arbitral proceedings should not be interrupted by frequent proceedings being filed in court.

8. If the provisions of Section 37 of the said Act are perused, an appeal is provided under Sub-section (2) Clause (a) only in case of an acceptance of a plea in Sub-section (2) of Sub-section (3) of Section 16 of the said Act. Thus, if the arbitrator finds that it has no jurisdiction or that it is exceeding the scope of his authority, then an appeal would lie. This is so since the adjudication in that process would bring the arbitration or the claim in that behalf to an end. If, however, the arbitrator found otherwise, then the remedy lies only by challenge to the final award under Section 34 of the said Act.

9. It is the submission of the learned Counsel for the respondent that the question of limitation determined by the learned arbitrator is not in the nature of a final determination and is the question of law and assumes the character of a jurisdictional issue. In this behalf learned Counsel has referred to the observations of the Constitution Bench of the Supreme court in Pandurang Dhondi Chougule and Ors. v. Maruti Hari Jadhav and Ors. where in para-10 it has been observed as under:

It is well-settled that a plea of limitation or a plea of res judicata is a plea of law which concerns the jurisdiction of the Court which tries the proceedings. A finding on these pleas in favor of the party raising them would oust the jurisdiction of the Court, and so, an erroneous decision on these pleas can be said to be concerned with questions of jurisdiction which fall within the purview of Section 115 of the Code.

10. Learned Counsel for the respondent has also drawn the attention of this Court to para-69 of the judgment of the Supreme Court in ITW Signode India Limited v. Collector of Central Excise where it has been held as under:

The question of limitation involves a question of jurisdiction. The finding of fact on the question of jurisdiction would be a jurisdictional fact. Such a jurisdictional question is to be determined having regard to both fact and law involved therein.

11. Learned Counsel for the respondent, thus, contends that the issue of limitation, being a jurisdiction issue, is squarely covered within the parameters of Sub-section (2) of Section 16 of the said Act. Learned Counsel further submits that insofar as the second preliminary issue is concerned, the decision of the same would fall within Sub-section (3) of Section 16 of the said Act.

12. Learned Counsel for the respondent has further drawn the attention of this Court to the judgment of a learned single Judge of this Court in Union of India and Anr. v. East Coast Boat Builders and Engineers Ltd. where it was held that a decision by an arbitrator that it has the jurisdiction to entertain the dispute is not subject to appeal as it is not an interim award under Section 16(5) of the said Act. A reference has also been made to the judgment of the learned single Judge of the Mumbai High Court in Kapal R. Mehra and Ors. v. Bhupendra M. Bheda and Ors. , where it was observed as under:

The present petition is filed under Section 34 of the Act. Will such a petition lie against a decision refusing to accept the plea of jurisdiction. Arbitral award, includes an interim award, therefore, can a challenge to the award be made on the ground that it is an interim award. If such a plea is upheld it would mean that though appeal is not available under Section 37(2)(a) the decision can be challenged under Section 34. If, Section 34 is read to mean to include every interim order or award the object and purpose behind Section 37 would be defeated. Interim award has not been defined. Under Sub-section (5) of Section 31 of the Arbitration Act, 1996, the Arbitral Tribunal can make an interim award on any matter in respect of which it can make a final award. Thus at an interim stage there can be determination of claim in respect of which a final award can be made. An award can be enforced as a decree by virtue of Section 36 of the Act. An award is therefore, a final determination of the claim. An interim award will be such determination of a claim at an interim stage. A harmonious construction, therefore, of Section 34 and 37 read conjointly would mean only those orders can be challenged in respect of which a statutory remedy by way of appeal is provided under Section 37 of the Arbitration and Conciliation Act, 1996. An order under Section 16(5) does not constitute an arbitral award either interim or final and hence cannot be challenged under Section 34 of the Act. If accepting the contention of want of jurisdiction as an award, there would have been no need to provide an appeal under Section 37(2) of the Arbitral Act. In my view, therefore, the petition as filed is not maintainable.

13. Lastly, the learned Counsel has referred to the judgment of this Court in OMP No. 27/2007; titled Triad India v. Tribal Cooperative Marketing and Development Federation of India Limited and Anr. decided on 15.2.2007 where the scope of Sections 16 and 34 of the said Act have been examined in the following terms:

12. It cannot be lost sight of that the said Act came into force to get over some of the difficulties which arose under the Indian Arbitration Act, 1940. The object was to make the arbitration proceedings more efficacious with less intervention by the Court. The scheme of the Act also envisages a continuation of the arbitration without periodic interdicts by any Court. Section 16 of the said Act carves out an exception to the general rule inasmuch as the provision specifically provides in respect of the plea of objection to the competency of an arbitral tribunal. The reason is that if an arbitrator is himself of the view that he is not competent, no purpose would be served by continuation of the arbitration proceedings. If the arbitrator finds lack of competency, the arbitral proceedings would come to an end. It is in view thereof that an appeal has been provided under Section 37 of the said Act.

13. The position would be however different where the arbitral tribunal finds that it is competent to proceed with the arbitration. No appeal has been provided in such a case. The consequences of such a decision are provided in Section 16(5) of the said Act is that the arbitral proceedings would continue resulting in an arbitral award. The remedy is provided in Section 16(6) of the said Act which is to challenge the ultimate award under Section 34 of the said Act. There is no segregated challenge permissible only on the question of the competency of the arbitral tribunal.

14. In this behalf, reference may be made to the judgment of the Apex Court in Pandey and Company, Builders Pvt. Ltd. v. State of Bihar and Anr. , wherein the Court observed that in the event the Arbitrator opines that he has jurisdiction in the matter, he may proceed therewith which Order can be challenged along with the Award in terms of Section 34 of the said Act.

15. In Keti Construction (I) Ltd v. Gas Authority of India Ltd and Ors. 2005 (1) Arbitration L.R. 230 (Delhi) (DB), a Division Bench of this Court found from the facts of the case that the appellant had been questioning the jurisdiction of the arbitrator at all stages and in spite of the protests regarding jurisdiction, the arbitrator had proceeded with the matter and had given a 'no claim' award. It was observed that the only remedy left with the appellant was to wait till the award was given as per Sub-section 6 of Section 16 of the said Act and thereafter challenge the award pursuant to Sub-section 6 of Section 16. Learned Single Judge of the Gujarat High Court in Executive Engineer, Sardar Sarover Narmada Nigam v. Bhaven Construction, Vadodara and Anr. and learned Single Judge of this Court in Nav Sansad Vihar Cooperative Group Housing Society Ltd. (Redg.) v. Ram Sharma and Ass. 2000 (4) AD (Delhi) 614 observed that where the Arbitrator finds that he has jurisdiction in the matter, the arbitrator would continue with the proceedings and make an arbitral award. The only remedy available in such a case is to wait till the award is made and to challenge the same under Section 34 of the said Act and no separate remedy has been given under the said Act against such order.

16. In Union of India and Anr v. East Coast Boat Builders and Engineers Ltd. 2nd (1998) II Delhi 797, wherein an order ruling that the disputes raised are arbitrable was challenged, learned Single Judge of this Court observed as under:

19. If an Order on the point of jurisdiction of the arbitral tribunal was to be an interim award under the Act, Section 37 of the Act would not have provided for appeal against an order whereby the arbitral tribunal holds that it has no jurisdiction. While enacting Section 16 of the Act, the legislature was conscious that the arbitral tribunal could hold in its favor or against itself on the point of jurisdiction. If the legislature had to treat an order under Section 16 to be an interim award, it would not have provided for an appeal under Section 37 where the arbitral tribunal allows the plea that the arbitral tribunal does not have jurisdiction and the legislature would have left challenge to such order as well under Section 34 of the Act. It cannot be accepted that the order under Section 16 would change its nature upon two different contingencies, that is to say, where the order rejects the plea of no jurisdiction it becomes an interim award and where the arbitral tribunal allows the plea of no jurisdiction it is not an interim award and only appealable. Therefore, it can easily be interpreted that in either case it is only an interim order and not an interim award. Analogy of British Law on the subject cannot be pressed into service because under the British Arbitration Act such order has been specifically terms as award whereas in the Indian Arbitration act such order has not been so specifically termed.

20. From the scheme of the Act, it is apparent that the legislature did not provide appeal against the order under Section 16(5) where the arbitral tribunal takes a decision rejecting the plea that the arbitral tribunal has no jurisdiction. The intention appears to be that in such case, the arbitral tribunal shall continue with the arbitral proceedings and make an award without delay and without being interfered in the arbitral process at that stage by any Court in their supervisory role.

17. In view of the aforesaid, I am unable to accept the plea of the learned Counsel for the petitioner that the reference to 'arbitral award' in Sub-section 6 implies that a decision under Section 16 of the said Act is an award. The expression is used in the context of Section 16(5) of the said Act which provides that where such a plea is rejected, the proceedings must continue and an arbitral award made. It is that ultimate arbitral award which would be subject matter of challenge under Section 34 of the said Act. The object of the said provision is that an aggrieved party is not without remedy but the stage of remedy is when the final award is made.

14. Learned senior Counsel for the petitioner, on the other hand, seeks to contend that the reference to the absence of jurisdiction under Section 16(2) of the said Act really relates only to the disability of the arbitrator to proceed further with the matter and not with respect to aspects such as adjudication on limitation. In this behalf learned senior Counsel referred to the observations of the learned single Judge of this Court in Noida Toll Bridge Co. Ltd. v. Mitsui Marubeni Corporation The factual matrix of the said case related to the applicability of Section 69 of the Partnership Act and it was held that the question regarding the said applicability could not be treated as a jurisdiction issue. It was held that just as in a civil suit the Court does not cease to have jurisdiction because the suit is barred by limitation or by other provisions of law so also in arbitration proceedings any such legal bar to the maintainability of the claim would not effect the jurisdiction of the Arbitral Tribunal.

15. On a consideration of the aforesaid aspects, I am of the view that the objections filed by the petitioner at this stage are not maintainable. As discussed above, the object of the said Act is that the arbitral proceedings must continue unless an order is made which is subject to appeal under Section 37 of the said Act. Sub-section (2) of Section 37 of the said Act specially takes care of a situation where a plea of lack of jurisdiction is accepted and the object is clear i.e. where the arbitral proceedings would come to an end as a consequence of the said adjudication, an appeal must be provided for. However, if the Court comes to the conclusion that it has jurisdiction to proceed further in the matter, no such appeal is provided and the remedy would lie only under Section 34 of the said Act.

16. In view of the aforesaid, the only question which begs consideration is whether the decision on the aspect of limitation would be a matter relating to the jurisdiction of the arbitral tribunal under Sub-section (2) of Section 16 of the said Act and, if the answer to the said is in the affirmative, then the remedy would be only under Sub-section (2) of Section 16 of the said Act by filing a petition under Section 34 of the said Act at the stage of final adjudication.

17. In my considered view, that issue is no more res integra in view of the observations of the Constitution Bench of the Supreme Court in Pandurang Dhondi Chougule and Ors. v. Maruti Hari Jadhav and Ors. (supra). The observations made by the learned single Judge of this Court in Noida Toll Bridge Co. Ltd. v. Mitsui Marubeni Corporation (supra) were really in the context of the Partnership Act and even if there are some observations about bar of limitation, the same can hardly hold good in view of the judgment of the Constitution Bench of the Supreme Court.

18. The petitioner has come to this Court on the question that the claim held by the arbitrator to be within time is actually barred by time but in view of the aforesaid conclusion, that aspect is not required to be adjudicated at this stage and in case ultimately the award on the merits of the claim go against the petitioner, the petitioner would have every right to challenge the finding by filing objections under Section 34 of the said Act.

19. It may also be observed that a mere description of the adjudication as an award or an interim award would not make it subject to challenge under Section 34 of the said Act when the actual adjudication is really on an aspect relating to the jurisdiction of the arbitrator on the plea of limitation under Sub-section (2) of Section 16 of the said Act. There is no examination of the claim on merits. In order to constitute an interim award which is also really involved, it has to be determination of the claim at an interim stage. A finality is attached to such determination. As noticed above, this is not so in the present case where the only aspect examined in respect of the claim was whether it was within time and it is yet to be established whether the respondent would succeed on the claim on merits.

20.I find no merit in the petition. The same is dismissed with costs of Rs. 10,000/-.

IA No. 1660/2007

Dismissed.

Interim order dated 20.02.2007 stand vacated.