COMPETENCE OF ARBITRAL TRIBUNAL TO MAKE A BINDING DECISION ON ITS OWN JURISDICTION
There was no legislation under the Arbitration Act of 1940 which permitted the Arbitral Tribunal to decide on its own jurisdiction and it was the activity of the court to decide on the jurisdiction of the arbitral tribunal. Yet, under Section 16 of the Arbitration and Conciliation Act, 1996 the Arbitral Tribunal has been allotted the power to make a decision on its own jurisdiction. Section 16 (1) of the Arbitration and Conciliation Act states that the Arbitral Tribunal may rule on its own jurisdiction, including ruling on any objection with respect to the existence or validity of the arbitration agreement.
Section 16 of the Arbitration and Conciliation Act includes the guideline of competence-competence. It has two features: first, that the tribunal may decide on its jurisdiction without help from the courts, and second, that the courts are prevented from deciding the issue before the tribunal has made a determination on the issue.
But does this determination by the Arbitral Tribunal has a binding effect? Can it not be challenged in courts? In Landmark Judgement of Union of India versus M/s. East Coast Boat Builders and Engineers Ltd. it was expressed:
"From the statues of the Act, it is of the view that the government didn't provide appeal against the order under section 16(5) where the arbitral tribunal takes a decision dismissing the plea that the arbitral tribunal has no jurisdiction. The intention appears to be that in such a case, the arbitral tribunal will proceed with the arbitral proceedings and pass an order immediately and without being interfered in the arbitral procedure at that phase by any court in their administrative role."
In Landmark Judgement of Nav Sansad Vihar Coop. Group Housing Society Ltd. (Regd.) vs. Ram Sharma and Associates it was expressed that if a plea is dismissed by the Arbitral Tribunal under section 16(5) of the Arbitration and Conciliation Act the arbitral proceedings will continue, an order will be passed and the aggrieved party will need to wait till the passing out of the order and there is no separate remedy against such order.
In any case, under section 37(2) of the Arbitration and Conciliation Act, a decision of the tribunal accepting the plea that it doesn't have jurisdiction or is exceeding its extent of authority is appealable. In Landmark Judgement of Pharmaceutical Products of India Ltd. vs. Tata Finance Ltd. it was expressed:
"Where the Arbitral Tribunal chooses to reject the plea in regards to its jurisdiction, sub-section (5) clearly enables the Tribunal to proceed with the arbitral proceedings and pass an arbitral order. Sub-section (5) accommodates the procedure where such an arbitral order might be challenged. It provides that such an order can only be challenged in accordance with section 34. And again, if the Arbitral Tribunal decides to accept the plea that it has no jurisdiction, at that point such an order is appealable under section 37(2) of the Act."
In this manner, we notice that when the Arbitral Tribunal decides to reject a plea regarding its jurisdiction then the order passed in regards to its jurisdiction isn't appealable however when the Arbitral Tribunal decides to accept the plea that it has no jurisdiction then such an order passed is appealable under section 37(2) of the Arbitration and Conciliation Act.