Appeal against dismissal of application under Section 16 only after final award

Cause Title : M.D. Creations & Others vs Ashok Kumar Gupta, C.O. 2545 of 2022, Calcutta High Court

Date of Judgment/Order : 09.06.2023

Corum : Bivas Pattanayak, J.

Citied: 

1. Mcdermott International INC versus Burn Standard Co. Limited and others reported in (2006) 11 SCC 181
2. A. Venkatasubbiah Naidu versus S.Chellappan and Others reported in (2000) 7 SCC 695
3. Hindusthan Commercial Bank versus Punnu Sahu reported in AIR 1970 SC 1384
4. Abanindra Kumar Maity versus A.K Biswas reported in AIR 1954 Cal 355
5. Achutananda Baidya versus Prafullya Kumar Gayen & Ors reported in AIR 1997 SC 2077
6. Security Hitech Graphics Private Limited versus LMI India Private Limited in C.O 1931 of 2022
7. Deep Industries Limited versus Oil and Natural Gas Corporation Limited and Another reported in (2020) 15 SCC 706
8. Bhaven Construction through Authorised Signatory Premjibhai K. Shah versus Executive Engineer, Sardar Sarovar Narmada Nigam Ltd. & Another reported in (2022) 1 SCC 75

Background

As per agreement, when dispute arose between the litigants, the matter was referred to arbitration under Section 11 of the Arbitration and Conciliation act, 1996 which was allowed. The opposite party-claimant filed statement of claim before the arbitrator as well as an application under Section 17 of the Arbitration and Conciliation Act. The petitioners also filed their statement in defence along with counter claim. In the proceedings before the learned arbitrator the petitioners raising the issue of the agreement being unstamped, filed an application under Section 16 of the Arbitration and Conciliation Act raising objection to the jurisdiction of the arbitrator and for dismissal of the arbitral reference and alternatively for impounding of agreement dated 27th June 2019 and sending the said agreement for stamping and registration before the concerned authority. Upon considering the materials on record and hearing the parties the application of the petitioners under Section 16 of the Act was dismissed by the arbitrator who kept the issue raised with regard to unstamped document open since such defect is curable upon payment of deficit stamp duty and such aspect can be decided upon evidence.

The present appeal was filed by the Petitioners against the said dismissal arguing that on rejection of the plea of the petitioners in respect of their application under Section 16 of the Act by the arbitrator, the petitioners are left with no other alternative but to file revisional application under Article 227 of the Constitution of India.

Judgment

The HC observed that Section 16 of the Arbitration and Conciliation Act, 1996 provides that if the arbitral tribunal finds that it does not have jurisdiction then an appeal can be filed under Section 37 of the Act. But if the arbitral tribunal considers that it is competent, which is the circumstances in the case at hand, then what would be the remedy available to the aggrieved party.

Referring to judgments in Deep Industries & Bhaven Construction (supra), the court decided that in view of the observations of the Hon’ble Court, in a case where the plea challenging jurisdictional competency of the arbitrator is dismissed, the aggrieved party has to wait till the passing of the final award, and then he can file an application for setting aside such an arbitral award under Section 34 of the Act. There is no segregated challenge permissible only on the question of the competency of the Arbitral Tribunal. Therefore, in the usual course the Arbitration Act provides for a mechanism of challenge under Section 34 of the Act and hence the aggrieved party cannot be said to be remediless in the circumstances of dismissal of application under Section 16 (2) of the Act. From the above judgements, it is clear that any challenge to the jurisdiction of the arbitrator necessarily has to be determined by the arbitrator in the first instance and then it can only be challenged under Section 34 after passing of the final arbitral award. Therefore, in view of the proposition as laid down by the Hon’ble Supreme Court, the court decided that in the case at hand the final arbitral award is yet to be passed hence the aggrieved party-petitioner in the event of dismissal of application under Section 16 of the Act has to wait till passing of the final award by the arbitrator and thereafter challenge the award under Section 34 of the Act.