Jurisdiction Order U/S 16 Arbitration Act Cannot Be Independently Challenged: Bombay High Court

The Bombay High Court on 27 July held that an arbitral tribunal's ruling under Section 16 of the Arbitration and Conciliation Act, 1996 (which empowers a tribunal to decide its own jurisdiction) cannot be challenged under Section 34 merely because it upholds the existence of a valid arbitration agreement, as such a ruling is not an interim award.

Justice Sharmila U. Deshmukh dismissed a petition filed by I.A. & I.C. Private Limited & Ors. challenging an arbitral tribunal's order allowing arbitration to proceed after finding that the Joint Venture Agreement with Atul & Arkade Realty was genuine and contained a valid arbitration agreement. She observed:

"The ruling in the present case is therefore a ruling on the jurisdiction of the arbitral tribunal under Section 16, which will have to await the final outcome and cannot be termed as an interim Award."

The dispute arose from a Joint Venture Agreement dated 28 March 2007. Atul & Arkade Realty claimed that JIK Industries Limited, after being declared a sick company, sought financial assistance to clear debts exceeding Rs. 23 crore. It alleged that Atul Patel remitted more than Rs. 23 crore to clear those liabilities, after which the parties executed the Joint Venture Agreement and related documents. I.A. & I.C. Private Limited, JIK Industries Limited and the other parties denied the claim and alleged that the documents were forged.

Atul & Arkade Realty invoked arbitration on 4 September 2012 based on the Joint Venture Agreement. On 6 May 2022, while appointing a sole arbitrator under Section 11 of the Act (which empowers the Court to appoint arbitrators), the Bombay High Court directed the tribunal to first decide whether the Joint Venture Agreement was valid and whether the parties had entered into a binding arbitration agreement.

On 21 October 2024, the tribunal decided both issues in favour of Atul & Arkade Realty. I.A. & I.C. Private Limited & Ors. challenged that order under Section 34 of the Act (which permits challenges to arbitral awards), arguing that it conclusively determined substantive rights and therefore amounted to an interim award. Atul & Arkade Realty opposed the petition, contending that the tribunal had only decided its jurisdiction under Section 16.

The High Court accepted the preliminary objection. It held that the tribunal had only decided whether it had jurisdiction to proceed with the arbitration. It noted that neither party had filed its statement of claim or defence when it referred the preliminary issue to the tribunal. The tribunal's task was limited to deciding whether a valid arbitration agreement existed.

Further, the Bench held that the Arbitration Act does not define an interim award. It explained that Section 31(6) of the Act (which empowers a tribunal to make an interim award) applies only to matters capable of final adjudication. An interim award finally determines a substantive claim or part of a claim, whereas a ruling under Section 16 only decides the tribunal's jurisdiction.

It Rejected the argument that every jurisdictional ruling becomes an interim award because of the expression "matter" in Section 31(6), observing:

"The contention that by virtue of rendering the findings on the joint venture agreement and other documents, there is nothing further remaining for determination cannot constitute a ground for terming the order as an interim Award irrespective of the fact that the issue of whether the agreement is required to be specifically performed still survives for adjudication."

Accordingly, the High Court dismissed the Section 34 petition as not maintainable and clarified that I.A. & I.C. Private Limited & Ors. may challenge the tribunal's jurisdictional findings while assailing the final arbitral award.

For I.A. & I.C. Private Limited & Ors.: Senior Advocate Sharan Jagtiani, with Advocates Karl Tamboly, Ketan Gaur, Neil Chatterjee, Ankit Pal and Hridhay Khurana, instructed by Trilegal.

For Atul & Arkade Realty: Advocates Rohaan Cama, Pranav Dessai, Pheroze Mehta, Bhakti Mehta and Shubadha Khandekar, instructed by Wadia Ghandy & Co.