The doctrine of competence-competence states that the Arbitral Tribunal has the jurisdiction to determine the scope and ambit of its own powers, i.e., the tribunal has the “competence” to decide its own “competence”.
In Kvaerner Cementation India Ltd. v Bajranglal Agarwal,[i] the petitioner had filed a suit in the civil court for a declaration that there was no arbitration clause between the parties and that the arbitration proceedings that were ongoing were without jurisdiction. The civil court had granted interim relief which was later vacated. The Sigle Judge of the Bombay High Court refused to interfere with the order of the civil court vacating the interim order on the grounds that in terms of Section 5 read with Section 16 of the Arbitration and Conciliation Act, 1996 (“1996 Act”), the Tribunal has the jurisdiction to rule on its own jurisdiction and the civil court cannot pass an injunction against arbitral proceedings. The court found that it was evident from Section 16 that the question of the validity of the arbitration agreement could be taken up before the Arbitral Tribunal itself whose decision could be assailed under Section 34 by a party aggrieved by the Arbitral Tribunal’s decision. The petitioner was, therefore, at liberty to raise the question before the Arbitral Tribunal itself and the Arbitral Tribunal may dispose the issue as a preliminary issue.
Position under the Arbitration and Conciliation Act, 1940
Under the 1940 Act, an Arbitral Tribunal had no power to determine whether an issue brought before it for adjudication could rightly be presented, nor could it determine whether or not a valid arbitration agreement existed from which the Arbitral Tribunal’s jurisdiction arose. Under Section 33 of the 1940 Act, this could be done by the courts alone. The Arbitral Tribunal could not be seen as being able to decide upon its own jurisdiction; it was not possible for the Arbitral Tribunal to sit upon a matter that may have affected its own existence and powers.
Importance of the doctrine of competence-competence
Section 16 of the 1996 Act contains the doctrine of competence-competence. The importance of Section 16 in the scheme of the 1996 Act is paramount as it demonstrates the fiath that is reposed in the authority of the Arbitral Tribunal. The legislature by way of Section 16 has placed abundant trust and reliance on the ability of the Arbitral Tribunal to do justice even where their decisions may affect their own existence. Another reason why Section 16 has been introduced is to ensure brevity in proceedings allowing the tribunal to deal with jurisdictional questions, which are generally treated as preliminary issues. The principles contained in Section 16 is a central tenet and must be kept in mind for the purpose of the interpretation of any of the provisions of the 1996 Act. Section 16 shows that the legislature believes that the Arbitral Tribunal can be entrusted with issues that are as grave as their own jurisdiction.
Concept of “jurisdiction”
Section 16 allows a tribunal to determine the extent and existence of its jurisdiction – consequently, the concept of “jurisdiction” is an important factor in the present discussion. The term “jurisdiction” means power or ability of an authority to do justice by adjudicating and determining the rights and liabilities of the parties who appear before them. The extent of jurisdiction is the limits or boundaries of that power. The question of existence of jurisdiction further includes the validity of the source from where the power is derived. For instance, the Indian judiciary derives its powers from the Constitution of India. The Constitution is thus the source of the judiciary’s power. The functions of the judiciary and the ability of the judiciary to act the way it does is borne from the Constitution. The limits of the jurisdiction of any court of law is determined on the baiss of 3 major factors –
1. The value of the suit brought before the court or the value of the subject-matter of the suit (pecuniary jurisdiction)
2. The physical limits of the area within which the court may exercise its powers (territorial jurisdiction)
3. The types of subject-matter in dispute relating to which the courts have the ability to adjudicate (subject-matter jurisdiction).
For instance, the original civil part of the Bombay High Court has pecuniary jurisdiction over cases valued at above one crore rupees, its territorial jurisdiction extends to the limits of Bombay city and it has subject-matter jurisdiction over all civil proceedings which are not ousted by the statute.
The Arbitral Tribunal’s jurisdiction
Similarly, arbitral tribunal shave their own source and extent of jurisdiction. An arbitral tribunal derives its powers from the arbitration agreement or the arbitration clause that is concluded between the parties. The agreement will outline who the parties are and what disputes may be submitted to the tribunal. The extent of jurisdiction of the tribunal is dependent on 3 factors –
1. The subject-matter of the dispute placed before it
2. The parties who seek relief from the tribunal
3. The type of relief sought by the parties from the tribunal.
First, the arbitration agreement will lay down what type of disputes may be referred to the arbitral tribunal. If, for example, there is a business agreement between 2 parties and there is a clause included in their business agreement that any disputes arising out of the containing contract is to be resolved by arbitration, then the arbitral tribunal would not have jurisdiction over matters that do not strictly pertain to that specific business agreement. A typical arbitration agreement looks like this-
“Every dispute, difference, or question which may at any time arise between the parties hereto or any person claiming under them, touching or arising out of or in respect of this agreement (deed) or the subject matter thereof shall be referred to the arbitration of XY, etc. or if he shall be unable or unwilling to act, to another arbitrator to be agreed upon between the parties or failing agreement to be nominated by…………or, failing agreement to two arbitrators one to be appointed by each party to the difference (whether consisting of one or more than one person) and in case of difference of opinion between them to an umpire appointed by the said two arbitrators before entering on the reference and the decision of the arbitrator ( or such arbitrators, or umpire as the case may be) shall be final and binding on the parties.
In the event of any dispute, difference or question arising out of or in respect of this agreement or the commission of any breach of any terms thereof or of compensation payable thereof or in any manner whatsoever in connection with it, the same shall be referred to the Chamber of Commerce……….(or the Association of………..) for arbitration as provided in Rules framed by the said Chamber (or Association) for the purpose. The decision or award so given shall be binding on the parties hereto.
All disputes arising between the partners as to the interpretation, operation, or effect of any clause in this deed or any other difference arising between the partners, which cannot be mutually resolved, shall be referred to the arbitration of…………failing him to any other arbitrator chosen by the partners in writing. The decision of such an arbitrator shall be binding on the partners.”
Second, the Arbitral Tribunal derives its jurisdiction on the basis of the parties who appear before it. If there are only 2 parties to the business agreement and a third party who is not privy to the contract and is not a party under the contract, then such a third party cannot invoke the arbitration clause. If the third party attempts to refer the dispute to an arbitral tribunal in the terms of the arbitration clause under the same business agreement, then that reference will be invalid as the Arbitral Tribunal does not have the jurisdiction to preside over a dispute referred by the third party. The tribunal’s jurisdiction is limited to the two parties privy to the business and arbitration agreement.
Third, an Arbitral Tribunal’s jurisdiction is limited by the relief sought by the parties. If, for instance, the dispute between the parties relates to a claim of defamation made by one party against the other, then the claimant may seek damages from the respondent by virtue of it being a civil remedy; the claimant thus may not request the arbitral tribunal to order the respondent to pay the fine or require the respondent to be imprisoned as a consequence of the offence. An arbitral tribunal has the jurisdiction to provide civil relief, but not punishments under criminal law.
Scope of enquiry
An Arbitral Tribunal’s scope of enquiry regarding determination of its jurisdiction is very wide. The tribunal may rule on the very foundation of its mandate and power. The enquiry need not be confined to the width of its jurisdiction but extend to the validity or source of its jurisdiction as well. Three major questions may be asked by the Tribunal when determining the scope and validity of its jurisdiction –
1. Is the arbitration agreement under which the tribunal was constituted valid?
2. Has the tribunal been constituted validly as per the terms of the arbitration agreement?
3. What are the matters or disputes that are correctly referred to the tribunal for jurisdiction?
If the first two questions are answered positively, and it is found that the matter referred to the tribunal falls within the ambit of the disputes that may be validly referred to the tribunal, then the tribunal may be said to have jurisdiction. If, however, either of the first two questions are answered in the negative, then the tribunal must find that it does not have jurisdiction and dismiss the arbitration proceedings before it.
In Reva Electric Car Co. (P) Ltd. v Green Mobil,[ii] the court observed that the Arbitral Tribunal may decide the following questions regarding its jurisdiction:
1. Whether there is an arbitration agreement,
2. Whether the arbitration agreement is valid,
3. Whether the contract in which the arbitration clause is found is null and void, and if so, whether the invalidity extends to the arbitration clause as well.
Time before which such a plea must be taken
Section 16 places a limit on the time after which a party to the arbitration proceedings may make a plea before the tribunal alleging that the tribunal has no jurisdiction. Section 16(2) states that such a plea shall not be raised after the submission of the statement of defence. A plea alleging that the tribunal has exceeded the scope of its authority must be raised as soon as the matter alleged to be beyond the tribunal’s scope of jurisdiction is raised during the proceedings. The Supreme Court clarified in Olympus Superstructure Pvt. Ltd. v Meena Vijay Khetan[iii] that the use of the words “as soon as” and “no later than” in the provision show that such a plea must be taken without undue delay. However, the Tribunal is competent to admit a plea as mentioned above if it considers that the reason for the delay in submitting a plea is justified.
The Arbitral Tribunal will itself consider the arguments placed before it regarding jurisdiction. I fit finds that the arguments are unsubstantiated, it may reject the plea and continue with the arbitral proceedings to make an arbitral award. Any party aggrieved by such an award shall have recourse against it under Section 34 of the 1996 Act.
Who may make a plea under Section 16?
A party who has participated in the appointment of the arbitrator concerned or in the constitution f the arbitral tribunal may also present a challenge to the tribunal’s jurisdiction It may so happen that a dispute having arisen, the claimant approached the court for adjudication thereof by way of a suit. The respondent to the suit brings an application before the court stating that since an arbitration agreement exists between the parties, the dispute must be first referred to arbitration. The claimant then argues that the disputes sought to be referred are within the scope of the arbitration agreement; the arbitration agreement reportedly exists. The court says that any investigation into the scope of the disputes shall be done by the tribunal itself under Section 16. The court therefore directs the parties to arbitration. The claimant, as per the instructions of the court, participates in the appointment of an arbitrator as per the arbitration agreement. Once the tribunal is constituted, the claimant then places before them the plea that the concerned disputes cannot be referred to arbitration. It cannot be said that the party is not allowed to present such a plea merely because he facilitated the appointment of the arbitrator.
It may also be noted that Section 16 does not make it imperative that the application be placed by one of the parties challenging the tribunal’s jurisdiction before the tribunal can consider the question of its competence. The tribunal may suo motu look into its competence and if it finds that there is some defect, then it can terminate the proceedings.
Frequently Asked Questions
1. Is it necessary for the challenge of jurisdiction to be a preliminary issue?
The tribunal has two options once it has reached a decision. It will give its order on grounds of its jurisdiction along with its decision in the final award. Otherwise, the tribunal may pass an order accepting jurisdiction; the aggrieved party must wait until the final award is passed and then challenge the jurisdiction of the tribunal.
2. Can parties waive their right to challenge the tribunal’s jurisdiction?
In Union of India vs Pam Development Pvt. Ltd.,[iv] the court held that Section 16 clearly lays down the time before which any challenge to the arbitrator’s competence must be considered. If no objection is raised throughout the proceedings and the jurisdiction is challenged for the first time during the challenge to the award, then the party is deemed to have waived its right to challenge the competence of the arbitrator.
Furthermore, pursuant to Section 4 of 1996 Act,[v] a party which knows that a requirement under the arbitration agreement has not been complied with but still proceeds with the arbitration without raising an objection as soon as possible, waives its right to object.[vi]
3. How does Section 16 operate in regard to Sections 8, 9 and 11 of the 1996 Act?
In proceedings before the court under Sections 8, 9 and 11 (whereupon judicial intervention is permissible) of the 1996 Act, the agreement to arbitrate between the parties will also be examined.
In proceedings under Section 8 – where a suit has been filed by one of the parties to an arbitration agreement and the other party places an application in the court requesting for taking notice of the agreement to arbitrate and refer the dispute to arbitration for settlement – the court will first recognise the existence of a valid arbitration clause/agreement.
In proceedings under Section 9 – whereby the court has the power to grant interim relief to party to an arbitration agreement who makes an application before it – the court must be convinced that that prima facie, a valid arbitration agreement exists before it makes orders granting such relief requested.
In proceedings under Section 11, the court may step in to appoint an arbitrator(s) where the parties failed to do so in accordance with the terms of their arbitration agreement. Once again, the court shall enquire into the existence and validity of the agreement before it shall appoint such arbitrator(s) on behalf of the parties.
By virtue of the principle of res judicata (once a matter decided finally, it cannot be brought up again), where the arbitration proceedings are a result of reference by the court under section 8 or the appointment of arbitrator(s) by the Chief Justice under section 11, the validity of the arbitration agreement is deemed to be finally decided and cannot be challenged again under section 16.
[i] (2012) 5 SCC 214.
[ii] (2012) 2 SCC 93: AIR 2012 SC 739; followed in Today Homes & Infrastructure (P) Ltd. v. Ludhiana Improvement Trust, (2014) 5 SCC 68: (2014) 5 Mah LJ 483.
[iii] (1999) 5 SCC 651: AIR 1999 SC 2102.
[iv] (2014) 11 SCC 366: (2014) 3 ALD 85.
[v] Arbitration and Conciliation Act, 1996, § 4 (India).
[vi] BSNL v. Motorola India Pvt. Ltd., (2009) 2 SCC 337: AIR 2009 SC 357.