M/S. INDIAN FARMERS FERTILIZER CO-OPERATIVE LIMITED versus M/S BHADRA PRODUCTS on 23 January 2018

SUPREME COURT REPORTS[2018] 1 S.C.R. 848

[2018] 1 S.C.R.

AM/S. INDIAN FARMERS FERTILIZER CO-OPERATIVELIMITED

v.

M/S BHADRA PRODUCTS

(Civil Appeal No. 824 of 2018)

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JANUARY 23, 2018

[R. F. NARIMAN AND NAVIN SINHA, JJ.]

Arbitration and Conciliation Act, 1996 – ss. 2(c), 31(6), 32and 34 – Interim Arbitral Award – Whether an award delivered byCan Arbitrator, which decides the issue of limitation, can be said tobe an interim award and whether such interim award can then beset aside u/s.34 of the Act – Held: Insofar as first question isconcerned, yes, the language of s.31(6) is advisedly wide in nature –A reading of the said sub-section makes it clear that the jurisdictionDto make an interim arbitral award is left to the good sense of thearbitral tribunal and that it extends to “any matter” with respect towhich it may make a final arbitral award – The expression “matter”is wide in nature and subsumes issues at which the parties are indispute – It is clear, therefore, that any point of dispute between theparties which has to be answered by the arbitral tribunal can beEthe subject matter of interim arbitral award – Insofar as secondquestion is concerned, yes, such an “interim award” is within themeaning of s.2(1)(c) of the Act and being subsumed within theexpression “arbitral award”, therefore, can be challenged u/s.34of the Act – English Arbitration Act, 1996 – s. 47.FArbitration and Conciliation Act, 1996 – s.16 – Appellant FArbitration and Conciliation Act, 1996 – s.16 – Appellantissued a tender enquiry for supply of Defoamers – Respondentsuccessfully submitted its bid, pursuant to which respondent suppliedthe Defoamers – Respondent demanded payment – However,appellant took the stand that nothing was due and payable toGrespondent – Since, dispute arose between the parties, respondentinvoked arbitration – Issue of limitation was taken first by theArbitrator and vide an award the said issue was decided in favourof respondent-claimant stating that their claim had not become timebarred – Whether a decision on a point of limitation would go tojurisdiction and, therefore, be covered by s.16 of the Act, in whichHcase all other issues have to be decided first, and it is only after such issues are decided that such an award can be challenged u/s.34 of the Act – Held: In the instant case, the award passed by theArbitrator is an interim award, which being an arbitral award, canbe challenged separately and independently u/s.34 of the Act –Such an award, which does not relate to the arbitral tribunal’s ownjurisdiction u/s.16, does not have to follow the drill of s.16(5) and(6) of the Act – In the light of this, Parliament may consider amendings.34 of the Act so as to consolidate all interim awards together withthe final arbitral award, so that one challenge u/s. 34 can be madeafter delivery of the final arbitral award – Piecemeal challengeslike piecemeal awards lead to unnecessary delay and additionalexpense.

Words and Phrases – “Jurisdiction” – The sense of term“jurisdiction” used in s.16 of the Arbitration and Conciliation Act,1996 – Discussed.

Doctrines/Principles – Kompetenz - kompetenz principle –Discussed – English Arbitration Act, 1996 – ss. 30, 31 – UNCITRALModel Law – Art. 16.

Allowing the appeal, the Court

HELD: Whether an award on the issue of limitation canfirst be said to be an interim award?

1.1 As can be seen from Section 2(c) and Section 31(6) ofArbitration and Conciliation Act, 1996, except for stating that anarbitral award includes an interim award, the Act is silent anddoes not define what an interim award is. Section 31(6) whichdelineates the scope of interim arbitral awards and states thatthe arbitral tribunal may make an interim arbitral award on anymatter with respect to which it may make a final arbitral award.[Para 8] [856-F-G]

1.2 The language of Section 31(6) is advisedly wide innature. A reading of the said sub-section makes it clear that thejurisdiction to make an interim arbitral award is left to the goodsense of the arbitral tribunal, and that it extends to “any matter”with respect to which it may make a final arbitral award. Theexpression “matter” is wide in nature, and subsumes issues atwhich the parties are in dispute. It is clear, therefore, that anypoint of dispute between the parties which has to be answered by A

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Athe arbitral tribunal can be the subject matter of an interim arbitralaward. However, in an appropriate case, the issue of more thanone award may be necessitated on the facts of that case. However,by dealing with the matter in a piecemeal fashion, what must beborne in mind is that the resolution of the dispute as a whole willbe delayed and parties will be put to additional expense. TheBarbitral tribunal should, therefore, consider whether there is anyreal advantage in delivering interim awards or in proceeding withthe matter as a whole and delivering one final award, bearing inmind the avoidance of delay and additional expense. Ultimately,a fair means for resolution of all disputes should be uppermost inCthe mind of the arbitral tribunal. [Para 9] [856-G-H; 857-A-C]

1.3 To complete the scheme of the Act, Section 32(1) isalso material. This section goes on to state that the arbitralproceedings would be terminated only by the final arbitral award,as opposed to an interim award, thus making it clear that thereDcan be one or more interim awards, prior to a final award, whichconclusively determine some of the issues between the parties,culminating in a final arbitral award which ultimately decides allremaining issues between the parties. [Para 10] [857-D]

1.4 Tested in the light of the statutory provisions and theEcase laws cited, it is clear that as the Arbitrator has disposed ofone matter between the parties i.e. the issue of limitation finally,the award in the instant case is an “interim award” within themeaning of Section 2(1)(c) of the Act and being subsumed withinthe expression “arbitral award” could, therefore, have beenchallenged under Section 34 of the Act. [Para 16] [860-G-H; 861-FA]

Satwant Singh Sodhi v. State of Punjab (1999) 3 SCC487 : [1999] 2 SCR 230; McDermott International Inc.v. Burn Standard Co. Ltd. (2006) 11 SCC 181: [2006]2 Suppl. SCR 409 – relied on.GExmar BV v. National Iranian Tanker Co. [1992] 1Lloyd’s Rep. 169 – referred to.

Whether a decision on a point of limitation would go to jurisdictionand, therefore, be covered by Section 16 of the Act?

H2.1 Section 16 of the Arbitration and Conciliation Act, 1996

M/S BHADRA PRODUCTS

lays down what, in arbitration law, is stated to be the Kompetenz-kompetenz principle, viz. that an arbitral tribunal may rule on itsown jurisdiction. At one time, the law was that the arbitrator, beinga creature of the contract, could not rule on the existence orvalidity of the arbitration clause contained in the contract. This,however, gave way to the Kompetenz principle which was adoptedby the UNCITRAL Model Law. [Para 17] [861-C]

2.2 It may be noticed that Section 16(1) to (4) of the Actare based on Article 16 of the UNCITRAL Model Law. TheKompetenz principle deals with the arbitral tribunal’s jurisdictionin the narrow sense of ruling on objections with respect to theexistence or validity of the arbitration agreement. What isimportant to notice in the language of Section 16(1) is the factthat the arbitral tribunal may rule on its ownjurisdiction, whichmakes it clear that it refers to whether the arbitral tribunal mayembark upon an inquiry into the issues raised by parties to thedispute. [Para 19] [862-E]

2.3 The “jurisdiction” mentioned in Section 16 of the Acthas reference to three things: (1) as to whether there is theexistence of a valid arbitration agreement; (2) whether the arbitraltribunal is properly constituted; and (3) matters submitted toarbitration should be in accordance with the arbitration agreement.[Para 20] [863-G-H]

2.4 It is clear that the award passed in the instant case isan interim award, which being an arbitral award, can be challengedseparately and independently under Section 34 of the Act. Suchan award, which does not relate to the arbitral tribunal’s ownjurisdiction under Section 16, does not have to follow the drill ofSection 16(5) and (6) of the Act. The Parliament may consideramending Section 34 of the Act so as to consolidate all interimawards together with the final arbitral award, so that one challengeunder Section 34 can be made after delivery of the final arbitralaward. Piecemeal challenges like piecemeal awards lead tounnecessary delay and additional expense. [Para 29] [871-F-H]

National Thermal Power Corpn. Ltd. v. SiemensAtkeingesellschaft (2007) 4 SCC 451; Ittavira Mathaiv. Varkey Varkey [1964] 1 SCR 495 – relied on.

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[2018] 1 S.C.R.

AOfficial Trustee v. Sachindra Nath Chatterjee (1969) 3SCR 92; Pandurang Dhoni Chougule v. Maruti HariJadhav [1966] 1 SCR 102; Anisminic v. ForeignCompensation Commission (1969) 2 AC 147; M.L. Sethiv. R.P. Kapur (1972) 2 SCC 427: [1973] 1 SCR 697;Hari Prasad Mulshanker Trivedi v. V.B. Raju (1974) 3BSCC 415 : [1974] 1 SCR 548; ITW Signode India Ltd.v. CCE (2004) 3 SCC 48 : [2003] 5 Suppl. SCR 751;Foreshore Coop. Housing Society Ltd. v. Praveen D.Desai (2015) 6 SCC 412 : [2015] 5 SCR 1075 –referred to.

CCase Law Reference

From the Judgment and Order dated 30.06.2017 of the High Courtof Orissa, Cuttack in ARBA No. 31 of 2015.GK. K. Venugopal, AG, Balaji Srinivasan, Alok Kumar, AmitAgnihotri, Ms. Somya Yadava, Ms. Aakriti Sharma, Siddhant Tripathi,Avi Pandey, Advs. for the Appellant.

Ajit Kumar Sinha, Sr. Adv., Ashwarya Sinha, Ms. Mohini Priya,Ms. Upasana Nath, Advs. for the Respondent.H

The Judgment of the Court was delivered by

R. F. NARIMAN, J. 1. Leave granted.

2. An interesting question arises as to whether an award deliveredby an Arbitrator, which decides the issue of limitation, can be said to bean interim award, and whether such interim award can then be set asideunder Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafterreferred to as “the Act”). The brief facts necessary to dispose of thepresent appeal are as follows.

3. The appellant before us issued a tender enquiry to 19 parties,including the respondent, for supply of Defoamers. The respondentsubmitted its bid, pursuant to which a Letter of Intent dated 2[nd] November,2006 was issued to the respondent for supply of 800 Metric Tonnes ofDefoamers to be used for production of 3,08,880 Metric Tonnes of P2O5.By 11[th] April, 2007, the respondent had supplied 800 Metric Tonnes ofDefoamers, however, they could not achieve the targeted production bythe end of 1[st] November, 2007, which was the validity of the supplyperiod. After considerable delay, on 6[th] June, 2011, the respondent issueda legal notice demanding payment of Rs.6,35,74,245/- on 27[th] September,2012. The appellant made it clear that there was nothing due and payableto the respondent. Since disputes arose between the parties, on 1[st]October, 2014 the respondent invoked arbitration, and on 25[th] January,2015, Justice Deepak Verma, a retired Judge of the Supreme Court,was appointed as the sole arbitrator. On 3[rd] March, 2015, issues wereframed. On 23[rd] July, 2015, the learned Arbitrator thought it fit to takeup the issue of limitation first, inasmuch as the counsel appearing forboth the parties submitted that this issue could be decided on the basis ofdocumentary evidence alone. This issue was then decided in favour ofthe claimant stating that their claims had not become time barred. Apetition filed under Section 34 of the Act challenged the aforesaid award,styling it as the ‘First Partial Award’. On 8[th] October, 2015, the DistrictJudge, Jagatsinghpur, dismissed the Section 34 Petition stating that theaforesaid award could not be said to be an interim award and that,therefore, the Court lacked jurisdiction to proceed further under Section34 of the Act. The appeal to the High Court of Orissa was dismissed bythe impugned order dated 30[th] June, 2017, reiterating the reasoning ofthe learned District Judge.

4. Appearing on behalf of the appellant, Mr. K.K. Venugopal,learned Attorney General, has argued before us that the award made on A

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A23[rd] July, 2015 is an interim award under the Act and would, therefore,be amenable to challenge under Section 34 of the Act as such. Hereferred us to various provisions of the Act and buttressed his stand withreference to a number of judgments, including, in particular, the judgmentof NationalThermal Power Corpn. Ltd. v. SiemensAtkeingesellschaft, (2007) 4 SCC 451. He also referred us to variousBjudgments on what constitutes an interim award and argued that,according to him, the point of limitation being one of the issues raised bythe parties, was finally decided by the aforesaid award and would,therefore, be amenable to challenge.

5. Shri Ajit Kumar Sinha, learned senior advocate appearing onCbehalf of the respondent, also placed reliance on various sections of theAct, in particular Sections 16 and 37 thereof. According to the learnedsenior advocate, a ruling on the point of limitation is a ruling on“jurisdiction” and any finding thereon goes to the root of the case. Thisbeing the case, the drill of Section 16 has to be followed, and as the plea

Dof limitation has been rejected by the learned Arbitrator, the arbitralproceedings have to continue further and the challenge has to be postponedonly after all other issues have been decided. According to the learnedsenior advocate, the scheme of Section 37, in particular Section 37(2)(a),also makes it clear that appeals lie only from an order under Section 16accepting the plea but not rejecting it. Also, according to the learnedEsenior advocate, the present award cannot be said to be an interim award,but is merely an order passed under Section 16 of the Act. He alsorelied upon several judgments to buttress his point of view and reliedheavily upon judgments which held that a decision on a point of limitationgoes to jurisdiction in which case Section 16 of the Act would getFattracted.

6. Having heard learned counsel for both parties, it is importantto first set out the relevant provisions of the Act, which are as under:

“2. Definitions.—(1) In this Part, unless the context otherwiserequires,—G(c) “arbitral award” includes an interim award;xxx xxx xxx

16. Competence of arbitral tribunal to rule on itsjurisdiction.—

(1) The arbitral tribunal may rule on its own jurisdiction, includingH

ruling on any objections with respect to the existence or validityof the arbitration agreement, and for that purpose,—

(a) an arbitration clause which forms part of a contract shall betreated as an agreement independent of the other terms of thecontract; and (b) a decision by the arbitral tribunal that the contract is null andvoid shall not entail ipso jure the invalidity of the arbitration clause.

(2) A plea that the arbitral tribunal does not have jurisdictionshall be raised not later than the submission of the statement ofdefence; however, a party shall not be precluded from raisingsuch a plea merely because that he has appointed, or participatedin the appointment of, an arbitrator.

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

(4) The arbitral tribunal may, in either of the cases referred to insub-section (2) or sub-section (3), admit a later plea if it considersthe 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 tribunaltakes a decision rejecting the plea, continue with the arbitralproceedings and make an arbitral award.

(6) A party aggrieved by such an arbitral award may make anapplication for setting aside such an arbitral award in accordancewith section 34.

xxx xxx xxx

31. Form and contents of arbitral award.—

(6) The arbitral tribunal may, at any time during the arbitralproceedings, make an interim arbitral award on any matter withrespect to which it may make a final arbitral award.

xxx xxx xxx

32. Termination of proceedings.—(1) The arbitral proceedingsshall be terminated by the final arbitral award or by an order ofthe arbitral tribunal under sub-section (2).

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37. Appealable orders.—(1) An appeal shall lie from thefollowing orders (and from no others) to the Court authorised bylaw to hear appeals from original decrees of the Court passingthe order, namely:—

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(a) refusing to refer the parties to arbitration under section 8; (b) granting or refusing to grant any measure under section 9;

(c) setting aside or refusing to set aside an arbitral award undersection 34.

C(2) Appeal shall also lie to a court from an order of the arbitraltribunal—

(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 sectionD17.

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

E7. The point at issue is a narrow one: whether an award on theissue of limitation can first be said to be an interim award and, second,as to whether a decision on a point of limitation would go to jurisdictionand, therefore, be covered by Section 16 of the Act.

8. As can be seen from Section 2(c) and Section 31(6), exceptFfor stating that an arbitral award includes an interim award, the Act issilent and does not define what an interim award is. We are, therefore,left with Section 31(6) which delineates the scope of interim arbitralawards and states that the arbitral tribunal may make an interim arbitralaward on any matter with respect to which it may make a final arbitralaward.

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9. The language of Section 31(6) is advisedly wide in nature. Areading of the said sub-section makes it clear that the jurisdiction tomake an interim arbitral award is left to the good sense of the arbitraltribunal, and that it extends to “any matter” with respect to which it maymake a final arbitral award. The expression “matter” is wide in nature,Hand subsumes issues at which the parties are in dispute. It is clear, therefore, that any point of dispute between the parties which has to beanswered by the arbitral tribunal can be the subject matter of an interimarbitral award. However, it is important to add a note of caution. In anappropriate case, the issue of more than one award may be necessitatedon the facts of that case. However, by dealing with the matter in apiecemeal fashion, what must be borne in mind is that the resolution ofthe dispute as a whole will be delayed and parties will be put to additionalexpense. The arbitral tribunal should, therefore, consider whether thereis any real advantage in delivering interim awards or in proceeding withthe matter as a whole and delivering one final award, bearing in mind theavoidance of delay and additional expense. Ultimately, a fair means forresolution of all disputes should be uppermost in the mind of the arbitraltribunal.

10. To complete the scheme of the Act, Section 32(1) is alsomaterial. This section goes on to state that the arbitral proceedings wouldbe terminated only by the final arbitral award, as opposed to an interimaward, thus making it clear that there can be one or more interim awards,prior to a final award, which conclusively determine some of the issuesbetween the parties, culminating in a final arbitral award which ultimatelydecides all remaining issues between the parties.

11. The English Arbitration Act, 1996, throws some light on whatis regarded as an interim award under English Law. Section 47 thereofstates:

“47 Awards on different issues, &c.

(1) Unless otherwise agreed by the parties, the tribunal maymake more than one award at different times on different aspectsof the matters to be determined.

(2) The tribunal may, in particular, make an award relating—

(a) to an issue affecting the whole claim, or (b) to a part only of the claims or cross-claims submitted to it fordecision.

(3) If the tribunal does so, it shall specify in its award the issue,or the claim or part of a claim, which is the subject matter of theaward.”

12. By reading this section, it becomes clear that more than oneaward finally determining any particular issue before the arbitral tribunalcan be made on different aspects of the matters to be determined. A

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Apreliminary issue affecting the whole claim would expressly be the subjectmatter of an interim award under the English Act. The English Actadvisedly does not use the expression “interim” or “partial”, so as tomake it clear that the award covered by Section 47 of the English Actwould be a final determination of the particular issue that the arbitraltribunal has decided.B

13. In Exmar BV v National Iranian Tanker Co. [1992] 1Lloyd’s Rep. 169, an interim final award was made, which contained thedecision that it would not issue any such award in the claimant’s favourpending determination of the respondent’s counter claims. Detailedreasons were given for this decision. The Judge, therefore, characterizedCthe aforesaid award as an award finally deciding a particular issuebetween the parties, and concluded that as a result thereof, he hadjurisdiction to review the tribunal’s decision.

14. In Satwant Singh Sodhi v. State of Punjab (1999) 3 SCC487 at 491 and 493, an interim award in respect of one particular itemDwas made by the arbitrator in that case. The question before the Courtwas whether such award could be made the rule of the Court separatelyor could be said to have been superseded by a final award made on allthe claims later. This Court held:

“6. The question whether interim award is final to the extent itEgoes or has effect till the final award is delivered will dependupon the form of the award. If the interim award is intended tohave effect only so long as the final award is not delivered it willhave the force of the interim award and it will cease to haveeffect after the final award is made. If, on the other hand, theFinterim award is intended to finally determine the rights of theparties it will have the force of a complete award and will haveeffect even after the final award is delivered. The terms of theaward dated 26-11-1992 do not indicate that the same is of interimnature.”

GOn the facts of the case, the Court then went on to hold:

“11. This Court in Rikhabdass v. Ballabhdas [AIR 1962 SC 551: 1962 Supp (1) SCR 475] held that once an award is made andsigned by the arbitrator, the arbitrator becomes functus officio.In Juggilal Kamlapat v. General Fibre Dealers Ltd. [AIR 1962SC 1123 : 1962 Supp (2) SCR 101] this Court held that anH

arbitrator having signed his award becomes functus officio butthat did not mean that in no circumstances could there be furtherarbitration proceedings where an award was set aside or thatthe same arbitrator could never have anything to do with theaward with respect to the same dispute. Thus in the presentcase, it was not open to the arbitrator to redetermine the claimand make an award. Therefore, the view taken by the trial courtthat the earlier award made and written though signed was notpronounced but nevertheless had become complete and final,therefore, should be made the rule of the court appears to us tobe correct with regard to Item 1 inasmuch as the claim in relationto Item 1 could not have been adjudicated by the arbitrator againand it has been rightly excluded from the second award made bythe arbitrator on 28-1-1994. Thus the view taken by the trialcourt on this aspect also appears to us to be correct. Therefore,the trial court has rightly ordered the award dated 28-1-1994 tobe the rule of the court except for Item 1 and in respect of whichthe award dated 26-11-1992 was ordered to be the rule of thecourt.”

It is, thus, clear that the first award that was made that finally determinedone issue between the parties, with respect to Item no.1 of the claim,was held to be an interim award inasmuch as it finally determined claim1 between the parties and, therefore, could not be re-adjudicated allover again.

15. In McDermott International Inc. v. Burn Standard Co.Ltd. (2006) 11 SCC 181 at page 211-212, under the heading ‘validity ofthe partial award’, this Court held:

“68. The 1996 Act does not use the expression “partial award”.It uses interim award or final award. An award has been definedunder Section 2(c) to include an interim award. Sub-section (6)of Section 31 contemplates an interim award. An interim awardin terms of the said provision is not one in respect of which afinal award can be made, but it may be a final award on thematters covered thereby, but made at an interim stage.

69. The learned arbitrator evolved the aforementioned procedureso as to enable the parties to address themselves as regardscertain disputes at the first instance. As would appear from thepartial award of the learned arbitrator, he deferred some claims.

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He further expressed his hope and trust that in relation to someclaims, the parties would arrive at some sort of settlement havingregard to the fact that ONGC directly or indirectly was involvedtherein. While in relation to some of the claims, a finality wasattached to the award, certain claims were deferred so as toenable the learned arbitrator to advert thereto at a later stage. Ifthe partial award answers the definition of the award, asenvisaged under Section 2(c) of the 1996 Act, for all intent andpurport, it would be a final award. In fact, the validity of the saidaward had also been questioned by BSCL by filing an objectionin relation thereto.

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70. We cannot also lose sight of the fact that BSCL did not raiseany objection before the arbitrator in relation to the jurisdictionof the arbitrator. A ground to that effect has also not been takenin its application under Section 34 of the Act. We, however, evenotherwise do not agree with the contention of Mr Mitra that apartial award is akin to a preliminary decree. On the other hand,we are of the opinion that it is final in all respects with regard todisputes referred to the arbitrator which are subject-matters ofsuch award. We may add that some arbitrators instead and inplace of using the expression “interim award” use the expression“partial award”. By reason thereof the nature and character ofan award is not changed. As, for example, we may notice that inarbitral proceedings conducted under the Rules of Arbitration ofthe International Chamber of Commerce, the expression “partialaward” is generally used by the arbitrators in place of interimaward. In any view of the matter, BSCL is not in any wayprejudiced. We may state that both the partial award and thefinal award are subject-matter of challenge under Section 34 ofthe Act.”

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The aforesaid judgment makes it clear that an interim award or partialaward is a final award on matters covered therein made at an intermediateGstage of the arbitral proceedings.

16. Tested in the light of the statutory provisions and the case lawcited above, it is clear that as the learned Arbitrator has disposed of onematter between the parties i.e. the issue of limitation finally, the awarddated 23[rd] July, 2015 is an “interim award” within the meaning of Section2(1)(c) of the Act and being subsumed within the expression “arbitral H

award” could, therefore, have been challenged under Section 34 of theAct.

17. However, Shri Sinha has argued before us that the awarddated 23[rd] July, 2015 being a ruling on the arbitral tribunal’s jurisdictionwould fall within Section 16 of the Act, and inasmuch as the decisiontaken on the point of limitation was rejected, the drill of Section 16 mustbe followed in which case all other issues have to be decided first, and itis only after such issues are decided that such an award can be challengedunder Section 34 of the Act. Section 16 of the Act lays down what, inarbitration law, is stated to be the Kompetenz-kompetenz principle, viz.that an arbitral tribunal may rule on its own jurisdiction. At one time, thelaw was that the arbitrator, being a creature of the contract, could notrule on the existence or validity of the arbitration clause contained in thecontract. This, however, gave way to the Kompetenz principle whichwas adopted by the UNCITRAL Model Law. Article 16 of theUNCITRAL Model Law, on which Section 16 of the Act is based, readsas follows:

“Article 16. Competence of arbitral tribunal to rule on itsjurisdiction

(1) The arbitral tribunal may rule on its own jurisdiction, includingany objections with respect to the existence or validity of thearbitration agreement. For that purpose, an arbitration clausewhich forms part of a contract shall be treated as an agreementindependent of the other terms of the contract. A decision by thearbitral tribunal that the contract is null and void shall not entailipso jure the invalidity of the arbitration clause.

(2) A plea that the arbitral tribunal does not have jurisdictionshall be raised not later than the submission of the statement ofdefence. A party is not precluded from raising such a plea by thefact that he has appointed, or participated in the appointment of,an arbitrator. A plea that the arbitral tribunal is exceeding thescope of its authority shall be raised as soon as the matter allegedto be beyond the scope of its authority is raised during the arbitralproceedings. The arbitral tribunal may, in either case, admit alater plea if it considers the delay justified.

(3) The arbitral tribunal may rule on a plea referred to in paragraph(2) of this article either as a preliminary question or in an award AB

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Aon the merits. If the arbitral tribunal rules as a preliminary questionthat it has jurisdiction, any party may request, within thirty daysafter having received notice of that ruling, the court specified inarticle 6 to decide the matter, which decision shall be subject tono appeal; while such a request is pending, the arbitral tribunalmay continue the arbitral proceedings and make an award.”B

18. The Statement of Objects and Reasons of the Act expresslyrefers to the UNCITRAL Model Law in the following terms:

“3. Though the said UNCITRAL Model Law and Rules areintended to deal with international commercial arbitration andCconciliation, they could, with appropriate modifications, serve asa model for legislation on domestic arbitration and conciliation.The present Bill seeks to consolidate and amend the law relatingto domestic arbitration, international commercial arbitration,enforcement of foreign arbitral awards and to define the lawrelating to conciliation, taking into account the said UNCITRALDModel Law and Rules.”

19. It may be noticed that Section 16(1) to (4) are based on Article16 of the UNCITRAL Model Law. The Kompetenz principle dealswith the arbitral tribunal’s jurisdiction in the narrow sense of ruling onobjections with respect to the existence or validity of the arbitrationEagreement. What is important to notice in the language of Section 16(1)is the fact that the arbitral tribunal may rule on its ownjurisdiction, whichmakes it clear that it refers to whether the arbitral tribunal may embarkupon an inquiry into the issues raised by parties to the dispute.

20. Here again, the English Arbitration Act of 1996 throws someFlight on the problem before us. Sections 30 and 31 of the said Act readas under:

“30 Competence of tribunal to rule on its own jurisdiction.- (1) Unless otherwise agreed by the parties, the arbitral tribunalmay rule on its own substantive jurisdiction, that is, as to—

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(a) whether there is a valid arbitration agreement, (b) whether the tribunal is properly constituted, and

(c) what matters have been submitted to arbitration in accordancewith the arbitration agreement.

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(2) Any such ruling may be challenged by any available arbitralprocess of appeal or review or in accordance with the provisionsof this Part.

31 Objection to substantive jurisdiction of tribunal. - (1)An objection that the arbitral tribunal lacks substantive jurisdictionat the outset of the proceedings must be raised by a party notlater than the time he takes the first step in the proceedings tocontest the merits of any matter in relation to which he challengesthe tribunal’s jurisdiction.

A party is not precluded from raising such an objection by thefact that he has appointed or participated in the appointment ofan arbitrator.

(2) Any objection during the course of the arbitral proceedingsthat the arbitral tribunal is exceeding its substantive jurisdictionmust be made as soon as possible after the matter alleged to bebeyond its jurisdiction is raised.

(3) The arbitral tribunal may admit an objection later than thetime specified in subsection (1) or (2) if it considers the delayjustified.

(4) Where an objection is duly taken to the tribunal’s substantivejurisdiction and the tribunal has power to rule on its ownjurisdiction, it may— (a) rule on the matter in an award as tojurisdiction, or (b) deal with the objection in its award on themerits. If the parties agree which of these courses the tribunalshould take, the tribunal shall proceed accordingly.

(5) The tribunal may in any case, and shall if the parties so agree,stay proceedings whilst an application is made to the court undersection 32 (determination of preliminary point of jurisdiction).”

These sections make it clear that the Kompetenz principle, whichis also followed by the English Arbitration Act of 1996, is that the“jurisdiction” mentioned in Section 16 has reference to three things: (1)as to whether there is the existence of a valid arbitration agreement; (2)whether the arbitral tribunal is properly constituted; and (3) matterssubmitted to arbitration should be in accordance with the arbitrationagreement.

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A21. That “jurisdiction” is a coat of many colours, and that the saidword displays a certain colour depending upon the context in which it ismentioned, is well-settled. In the classic sense, in Official Trustee v.Sachindra Nath Chatterjee, (1969) 3 SCR 92 at 99, “jurisdiction” isstated to be:

B“In the order of Reference to a Full Bench in the caseof Sukhlal v. Tara Chand [(1905) ILR 33 Cal 68] it was statedthat jurisdiction may be defined to be the power of a Court to hearand determine a cause, to adjudicate and exercise anyjudicial power in relation to it: in other words, by jurisdictionis meant the authority which a Court has to decide mattersCthat are litigated before it or to take cognizance of matterspresented in a formal way for its decision. An examination ofthe cases in the books discloses numerous attempts to define theterm ‘jurisdiction’, which has been stated to be ‘the power tohear and determine issues of law and fact’, the authority byDwhich the judicial officer take cognizance of and ‘decide causes’; ‘the authority to hear and decide a legal controversy’, ‘thepower to hear and determine the subject-matter in controversybetween parties to a suit and to adjudicate or exercise any judicialpower over them;’ ‘the power to hear, determine and pronouncejudgment on the issues before the Court’; ‘the power or authorityEwhich is conferred upon a Court by the Legislature to hear anddetermine causes between parties and to carry the judgmentsinto effect’; ‘the power to enquire into the facts, to apply thelaw, to pronounce the judgment and to carry it into execution’.”

(Mukherjee, Acting CJ, speaking for Full Bench of the CalcuttaFHigh Court in Hirday Nath Roy v. Ramachandra BarnaSarma ILR 68 Cal 138)

22. A Constitution Bench of this Court in Ittavira Mathai v.Varkey Varkey, (1964) 1 SCR 495 at 501-503, made a distinctionbetween an erroneous decision on limitation being an error of law whichGis within the jurisdiction of the Court, and a decision where the Courtacts without jurisdiction in the following terms:

“The first point raised by Paikedy for the appellant is that thedecree in OS No. 59 of 1093 obtained by Anantha Iyer and hisbrother in the suit on the hypothecation bond executed byHIttiyavira in favour of Ramalinga Iyer was a nullity because the

suit was barred by time. In assuming that the suit was barred bytime, it is difficult to appreciate the contention of learned counselthat the decree can be treated as a nullity and ignored insubsequent litigation. If the suit was barred by time and yet, thecourt decreed it, the court would be committing an illegality andtherefore the aggrieved party would be entitled to have the decreeset aside by preferring an appeal against it. But it is well settledthat a court having jurisdiction over the subject-matter of the suitand over the parties thereto, though bound to decide right maydecide wrong; and that even though it decided wrong it wouldnot be doing something which it had no jurisdiction to do. It hadthe jurisdiction over the subject-matter and it had the jurisdictionover the party and, therefore, merely because it made an errorin deciding a vital issue in the suit, it cannot be said that it hasacted beyond its jurisdiction. As has often been said, courts havejurisdiction to decide right or to decide wrong and even thoughthey decide wrong, the decrees rendered by them cannot betreated as nullities. Learned counsel, however, referred us to thedecision of the Privy Council in Maqbul Ahmad v. Onkar PratapNarain Singh [AIR (1935) PC 85] and contended that sincethe court is bound under the provisions of Section 3 of theLimitation Act to ascertain for itself whether the suit before itwas within time, it would act without jurisdiction if it fails to doso. All that the decision relied upon says is that Section 3 of theLimitation Act is peremptory and that it is the duty of the court totake notice of this provision and give effect to it even though thepoint of limitation is not referred to in the pleadings. The PrivyCouncil has not said that where the court fails to perform itsduty, it acts without jurisdiction. If it fails to do its duty, it merelymakes an error of law and an error of law can be corrected onlyin the manner laid down in the Civil Procedure Code. If theparty aggrieved does not take appropriate steps to have thaterror corrected, the erroneous decree will hold good and will notbe open to challenge on the basis of being a nullity.”

23. It is in this sense of the term that “jurisdiction” has been usedin Section 16 of the Act. Indeed, in NTPC (supra) at 460-461, a DivisionBench of this Court, after setting out Sections 16 and 37 held:

“10. Now, the only question that remains to be decided in thepresent case is whether against the order of partial award an ABC

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Aappeal is maintainable directly under Section 37 of the Act ornot. We have considered the submissions of learned counsel forthe appellant and after going through the counterclaim and thepartial award, we are of the opinion that no question of jurisdictionarises in the matter so as to enable the appellant to file a directappeal under Section 37 of the Act before the High Court. AsBalready mentioned above, an appeal under sub-section (2) ofSection 37 only lies if there is an order passed under Sections16(2) and (3) of the Act. Sections 16(2) and (3) deal with theexercise of jurisdiction. The plea of jurisdiction was not taken bythe appellant. It was taken by the respondent in order to meetCtheir counterclaim. But it was not in the context of the fact thatthe Tribunal had no jurisdiction, it was in the context that thisquestion of counterclaim was no more open to be decided forthe simple reason that all the issues which had been raised inCounterclaims 1 to 10 had already been settled in the minutes ofmeeting dated 6-4-2000/7-4-2000 and it was recorded that noDother issues were to be resolved in first and third contracts.Therefore, we fail to understand how the question of jurisdictionwas involved in the matter. In fact it was in the context of thefact that the entire counterclaims have already been satisfiedand settled in the meeting that it was concluded that no furtherEissues remained to be settled. In this context, the counterclaimsfiled by the appellant were opposed. If any grievance was there,that should have been (sic raised) by the respondent and not bythe appellant. It is only the finding of fact recorded by the Tribunalafter considering the counterclaim vis-à-vis the minutes ofmeeting dated 6-4-2000/7-4-2000. Therefore, there was noFquestion of jurisdiction involved in the matter so as to enable theappellant to approach the High Court directly.”

Interestingly, in a separate concurring judgment, P.K. Balasubramanyan,J., held:

G“17. In the larger sense, any refusal to go into the merits of aclaim may be in the realm of jurisdiction. Even the dismissal ofthe claim as barred by limitation may in a sense touch on thejurisdiction of the court or tribunal. When a claim is dismissed onthe ground of it being barred by limitation, it will be, in a sense, acase of the court or tribunal refusing to exercise jurisdiction toHgo into the merits of the claim. In Pandurang Dhoni

Chougule v. Maruti Hari Jadhav [AIR 1996 SC 153 : (1996)1 SCR 102] this Court observed that: (AIR p. 155, para 10)

“It is well settled that a plea of limitation or a plea of res judicatais a plea of law which concerns the jurisdiction of the courtwhich tries the proceedings. A finding on these pleas in favourof the party raising them would oust the jurisdiction of the court,and so, an erroneous decision on these pleas can be said to beconcerned with questions of jurisdiction which fall within thepurview of Section 115 of the Code.”

In a particular sense, therefore, any declining to go into the meritsof a claim could be said to be a case of refusal to exercisejurisdiction.

18. The expression “jurisdiction” is a word of many hues. Itscolour is to be discerned from the setting in which it is used.When we look at Section 16 of the Act, we find that the saidprovision is one, which deals with the competence of the ArbitralTribunal to rule on its own jurisdiction. SBP & Co. v. Patel Engg.Ltd. [(2005) 8 SCC 618] in a sense confined the operation ofSection 16 to cases where the Arbitral Tribunal was constitutedat the instance of the parties to the contract without reference tothe Chief Justice under Section 11(6) of the Act. In a case wherethe parties had thus constituted the Arbitral Tribunal withoutrecourse to Section 11(6) of the Act, they still have the right toquestion the jurisdiction of the Arbitral Tribunal including the rightto invite a ruling on any objection with respect to the existenceor validity of the arbitration agreement. It could therefore rulethat there existed no arbitration agreement, that the arbitrationagreement was not valid, or that the arbitration agreement didnot confer jurisdiction on the Tribunal to adjudicate upon theparticular claim that is put forward before it. Under sub-section(5), it has the obligation to decide the plea and where it rejectsthe plea, it could continue with the arbitral proceedings and makethe award. Under sub-section (6), a party aggrieved by such anarbitral award may make an application for setting aside sucharbitral award in accordance with Section 34. In other words, inthe challenge to the award, the party aggrieved could raise thecontention that the Tribunal had no jurisdiction to pass it or that ithad exceeded its authority, in passing it. This happens when the A

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Tribunal proceeds to pass an award. It is in the context of thevarious sub-sections of Section 16 that one has to understandthe content of the expression “jurisdiction” and the scope of theappeal provision. In a case where the Arbitral Tribunal proceedsto pass an award after overruling the objection relating tojurisdiction, it is clear from sub-section (6) of Section 16 that theparties have to resort to Section 34 of the Act to get rid of thataward, if possible. But, if the Tribunal declines jurisdiction ordeclines to pass an award and dismisses the arbitral proceedings,the party aggrieved is not without a remedy. Section 37(2) dealswith such a situation. Where the plea of absence of jurisdictionor a claim being in excess of jurisdiction is accepted by theArbitral Tribunal and it refuses to go into the merits of the claimby declining jurisdiction, a direct appeal is provided. In the contextof Section 16 and the specific wording of Section 37(2)(a) of theAct, it would be appropriate to hold that what is made directlyappealable by Section 37(2)(a) of the Act is only an acceptanceof a plea of absence of jurisdiction, or of excessive exercise ofjurisdiction and the refusal to proceed further either wholly orpartly.

19. In a case where a counterclaim is referred to and dealt withand a plea that the counterclaim does not survive in view of thesettlement of disputes between the parties earlier arrived at isaccepted, it could not be held to be a case of refusal to exercisejurisdiction by the Arbitral Tribunal. Same is the position whenan Arbitral Tribunal finds that a claim was dead and was notavailable to be made at the relevant time or that the claim wasnot maintainable for other valid reasons or that the claim wasbarred by limitation. They are all adjudications by the Tribunalon the merits of the claim and in such a case the aggrieved partycan have recourse only to Section 34 of the Act and will have tosucceed on establishing any of the grounds available under thatprovision. It would not be open to that party to take up the positionthat by refusing to go into the merits of his claim, the ArbitralTribunal had upheld a plea that it does not have jurisdiction toentertain the claim and hence the award or order made by it,comes within the purview of Section 16(2) of the Act andconsequently is appealable under Section 37(2)(a) of the Act.”

(at pages 463-464)

24. This judgment is determinative of the issue at hand and hasour respectful concurrence. However, various judgments were referredto by learned senior advocate appearing on behalf of the respondent, inwhich “jurisdiction” in the wide sense was used. Thus, a jurisdictionalerror under Section 115 of the Code of Civil Procedure, 1908, dealingwith revision petitions, was held to include questions which relate to resjudicata and limitation. [See Pandurang Dhoni Chougule v. MarutiHari Jadhav (1966) 1 SCR 102 at 107)].

25. This judgment was expressly referred to in the context ofAnisminic v. Foreign Compensation Commission, (1969) 2 AC 147,delivered in England, which virtually made all “errors of law” “errors ofjurisdiction” in the Administrative Law sphere and explained in M.L.Sethi v. R.P. Kapur, (1972) 2 SCC 427 at 435 as under:

“...The dicta of the majority of the House of Lords in the abovecase would show the extent to which “lack” and “excess” ofjurisdiction have been assimilated or, in other words, the extentto which we have moved away from the traditional concept of“jurisdiction”. The effect of the dicta in that case is to reducethe difference between jurisdictional error and error of law withinjurisdiction almost to vanishing point. The practical effect of thedecision is that any error of law can be reckoned as jurisdictional.This comes perilously close to saying that there is jurisdiction ifthe decision is right in law but none if it is wrong. Almost anymisconstruction of a statute can be represented as “basing theirdecision on a matter with which they have no right to deal”,“imposing an unwarranted condition” or “addressing themselvesto a wrong question”. The majority opinion in the case leaves aCourt or Tribunal with virtually no margin of legal error. Whetherthere is excess of jurisdiction or merely error within jurisdictioncan be determined only by construing the empowering statute,which will give little guidance. It is really a question of how muchlatitude the court is prepared to allow. In the end it can only be avalue judgment (see H.N.R. Wade, “Constitutional andAdministrative Aspects of the Anisminic case”. Law QuarterlyReview, Vol. 85,1969, p. 198). Why is it that a wrong decision ona question of limitation or res judicata was treated as ajurisdictional error and liable to be interfered with in revision? Itis a bit difficult to understand how an erroneous decision on a A

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Aquestion of limitation or res judicata would oust the jurisdictionof the court in the primitive sense of the term and render thedecision or a decree embodying the decision a nullity liable tocollateral attack. The reason can only be that the error of lawwas considered as vital by the court. And there is no yardstick todetermine the magnitude of the error other than the opinion ofBthe Court…”

26. Likewise, in Hari Prasad Mulshanker Trivedi v. V.B. Raju(1974) 3 SCC 415 at 423-424, a Constitution Bench of this Court againreferred to the blurring of lines between errors of law and errors ofjurisdiction found in Anisminic (supra) as follows:C

“Though the dividing line between lack of jurisdiction or powerand erroneous exercise of it has become thin with the decisionof the House of Lords in the Anisminic case, [(1967) 3 WLR382] we do not think that the distinction between the two hasbeen completely wiped out. We are aware of the difficulty inDformulating an exhaustive rule to tell when there is lack of powerand when there is an erroneous exercise of it. The difficulty hasarisen because the word “jurisdiction” is an expression which isused in a variety of senses and takes its colour from its context,(see per Diplock, J., at p. 394 in the Anisminic case). Whereasthe “pure” theory of jurisdiction would reduce jurisdictional controlEto a vanishing point, the adoption of a narrower meaning mightresult in a more useful legal concept even though the formalstructure of law may lose something of its logical symmetry. “Atbottom the problem of defining the concept of jurisdiction forpurpose of judicial review has been one of public policy ratherFthan one of logic”. [S. A. Smith : “Judicial Review ofAdministrative Action”, 2nd Edn., p. 98] And viewed from theaspect of public policy as reflected in the provisions of the 1950and 1951 Acts, we do not think that a wrong decision on a questionof ordinary residence for the purpose of entering a person’s namein the electoral roll should be treated as a jurisdictional errorGwhich can be judicially reviewed either in a civil court or beforean election tribunal.”

27. In ITW Signode India Ltd. v. CCE (2004) 3 SCC 48 at 74,a case strongly relied upon by Shri Sinha, this Court held in the contextof limitation qua recovery of duty under Section 11A of the Central ExciseHAct, 1944 as follows:

“69. The question of limitation involves a question of jurisdiction.The finding of fact on the question of jurisdiction would be ajurisdictional fact. Such a jurisdictional question is to bedetermined having regard to both fact and law involved therein.The Tribunal, in our opinion, committed a manifest error in notdetermining the said question, particularly, when in the absenceof any finding of fact that such short-levy of excise duty relatedto any positive act on the part of the appellant by way of fraud,collusion, wilful misstatement or suppression of facts, the extendedperiod of limitation could not have been invoked and in that viewof the matter no show-cause notice in terms of Rule 10 couldhave been issued.”

28. Given the context of Section 11A of the Central Excise Act,1944, obviously the expression “jurisdiction” would mean something morethan merely being able to embark on the merits of a dispute. In a recentjudgment under Section 9A of the Code of Civil Procedure, 1908 (asinserted by the State of Maharashtra), this Court in Foreshore Coop.Housing Society Ltd. v. Praveen D. Desai (2015) 6 SCC 412, referredto the expression “jurisdiction” occurring in Section 9A and held an earlierjudgment of this Court to be per incuriam. Though the ConstitutionBench judgment in Ittavira (supra) was mentioned by the Bench,referring to the argument of one of the counsel for the parties, in theconcluding portion, this judgment is not referred to at all. In any case,the reasoning of the Court in that case was in the context of Section 9Awhich, when contrasted with Order XIV of the Code of Civil Procedure,1908, made the Court accept the wider concept of “jurisdiction” as laiddown in Pandurang (supra).

29. In our view, therefore, it is clear that the award dated 23[rd]July, 2015 is an interim award, which being an arbitral award, can bechallenged separately and independently under Section 34 of the Act.We are of the view that such an award, which does not relate to thearbitral tribunal’s own jurisdiction under Section 16, does not have tofollow the drill of Section 16(5) and (6) of the Act. Having said this, weare of the view that Parliament may consider amending Section 34 ofthe Act so as to consolidate all interim awards together with the finalarbitral award, so that one challenge under Section 34 can be madeafter delivery of the final arbitral award. Piecemeal challenges likepiecemeal awards lead to unnecessary delay and additional expense.

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872SUPREME COURT REPORTS[2018] 1 S.C.R.

A30.The appeal is, accordingly, allowed and the impugned judgmentis set aside. The Section 34 proceedings before the District Judge,Jagatsinghpur may now be decided. There shall, however, be no orderas to costs.

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Ankit Gyan Appeal allowed.

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