Challenge to Arbitral Tribunal’s Jurisdiction Barred After Filing Defence

Introduction

On January 7, 2025, the Supreme Court of India, in M/s Vidyawati Construction Company v. Union of India, held that once a party has submitted its statement of defence in arbitration, it is barred from later challenging the jurisdiction of the arbitral tribunal under Section 16(2) of the Arbitration and Conciliation Act, 1996.

This decision reinforces procedural discipline in arbitration, ensuring that objections to jurisdiction are raised at the earliest stage rather than being used as an afterthought to delay proceedings.

Facts of the Case

The case arose from a contractual dispute between M/s Vidyawati Construction Company (appellant) and the Union of India (respondent) concerning a construction contract for a Railway Electrification Project in Allahabad.

Chronology of Events:

1. Contract Execution: The appellant was awarded the contract to construct a building for the General Manager’s office.
2. Dispute Arises: A dispute emerged regarding unpaid amounts under the contract.
3. Appointment of Arbitrators: The contract provided for a three-member arbitral tribunal. However, due to procedural delays, a retired Chief Justice of the High Court was appointed as the sole arbitrator.
4. Statement of Defence Filed (February 14, 2004):
   • The Union of India submitted its defence without objecting to the jurisdiction of the sole arbitrator.
   • Time was granted for modifying the defence, but no challenge to jurisdiction was raised.
5. Belated Jurisdiction Challenge (April 24, 2004):
   • Instead of seeking modification of the defence, the respondent filed an objection, challenging the jurisdiction of the sole arbitrator.
   • The sole arbitrator rejected the objection, citing Section 16(2) of the Arbitration Act, which bars jurisdictional challenges after filing a defence.
6. Arbitral Award (February 21, 2008):
   • The arbitrator issued an award in favour of the appellant.
7. Challenge Under Section 34 of the Arbitration Act:
   • The Union of India challenged the award before the District Judge, Allahabad, solely on the ground that the appointment of a sole arbitrator was invalid under the arbitration clause.
   • The District Judge set aside the award, holding that the composition of the tribunal was improper.
8. High Court Appeal Under Section 37:
   • The appellant challenged this decision before the Allahabad High Court, which upheld the District Judge’s ruling.
9. Supreme Court Appeal:
   • The appellant challenged both the Section 34 and Section 37 judgments before the Supreme Court.

Legal Issues Before the Supreme Court

1. Can a party challenge the jurisdiction of an arbitral tribunal after submitting a statement of defence?
2. Did the respondent waive its right to object by accepting the sole arbitrator and filing a defence?
3. Was the appointment of a sole arbitrator contrary to the arbitration clause requiring a three-member tribunal?

Arguments Presented

Appellant’s Contentions (M/s Vidyawati Construction Company)

• Jurisdiction Challenge Barred:
  • Section 16(2) of the Arbitration Act states that jurisdictional objections must be raised before submitting the statement of defence.
  • The Union of India accepted the appointment of the sole arbitrator and filed a defence, thereby waiving its right to object.
• Conduct of the Respondent Shows Acceptance:
  • In proceedings dated December 5, 2003, the respondent expressly agreed that the sole arbitrator would conduct the arbitration.
  • Filed the same defence as submitted before the previous tribunal.
  • Time was granted for modification, but no objection to jurisdiction was raised.
• Section 34 and 37 Courts Erred:
  • The District Judge and High Court wrongly set aside the award solely on jurisdictional grounds without considering the merits.

Respondent’s Contentions (Union of India)

• Challenge to Sole Arbitrator’s Appointment:
  • The arbitration clause mandated a three-member tribunal, making the appointment of a sole arbitrator invalid.
  • Under Bharat Broadband Network Ltd. v. United Telecoms Ltd., (2019) 5 SCC 755, if the appointment of an arbitrator is contrary to the arbitration clause, the tribunal lacks jurisdiction.
• Statement of Defence Filed Before Challenge Was Possible:
  • The statement of defence was initially filed before the previous tribunal (three arbitrators).
  • The Union of India argued that it could not have objected to the jurisdiction before the arbitrator was changed.

Supreme Court’s Analysis and Reasoning

1. Section 16(2) of the Arbitration Act is Mandatory

• Section 16(2) states:
  
  “A plea that the arbitral tribunal does not have jurisdiction shall be raised not later than the submission of the statement of defence.”
• The Court held that once a defence is submitted, jurisdictional challenges are barred.
• Cited Indian Farmers Fertiliser Cooperative Ltd. v. Bhadra Products, (2018) 2 SCC 534, which held that objections under Section 16 must be raised at the first opportunity.

2. Conduct of the Respondent Demonstrated Waiver

• The respondent expressly agreed to the sole arbitrator’s jurisdiction during proceedings on December 5, 2003.
• The Court noted that the respondent had the opportunity to modify its defence but did not raise an objection.
• Under Quippo Construction Equipment Ltd. v. Janardan Nirman Pvt. Ltd., (2020) 18 SCC 157, a party cannot approbate and reprobate by first accepting an arbitrator and later objecting.

3. Appointment of a Sole Arbitrator Was Not Void

• The Court rejected the argument that a sole arbitrator’s appointment was inherently void.
• Under State of Maharashtra v. M/s ARK Builders Pvt. Ltd., (2011) 4 SCC 616, an appointment contrary to the contract does not automatically render the arbitration invalid unless timely objected to.

Conclusion and Judgment

The Supreme Court allowed the appeal, holding that:

1. A jurisdictional challenge cannot be raised after submitting a defence under Section 16(2) of the Arbitration Act.
2. The respondent waived its right to object by accepting the sole arbitrator and filing a defence.
3. The Section 34 and 37 Courts erred in setting aside the award on jurisdictional grounds.

Key Implications of the Judgment

• Ensures procedural discipline by preventing belated challenges to arbitral jurisdiction.
• Protects the finality of arbitration awards from being overturned on technicalities.
• Strengthens party autonomy, reinforcing that agreements made before the tribunal must be honoured.

This ruling reinforces arbitration as a time-efficient dispute resolution mechanism, ensuring that parties cannot manipulate proceedings by delaying jurisdictional objections.

FAQs:

1. When should I raise an objection to an arbitral tribunal’s jurisdiction?

According to Section 16(2) of the Arbitration and Conciliation Act, 1996, any objection to the arbitral tribunal’s jurisdiction must be raised no later than the submission of your statement of defence. Failing to do so can result in the loss of your right to challenge jurisdiction later.

2. What happens if I file my defence before challenging an arbitrator’s jurisdiction?

If you submit your statement of defence without raising an objection to the tribunal’s jurisdiction, you are generally barred from doing so at a later stage. Courts consider this a waiver of your right to object, reinforcing procedural discipline in arbitration.

3. Can an arbitration agreement requiring multiple arbitrators be valid with a sole arbitrator?

While an arbitration clause may specify a certain number of arbitrators (e.g., three members), the appointment of a sole arbitrator, even if contrary to the contract, does not automatically invalidate the arbitration. However, the affected party must raise a timely objection to such an appointment; otherwise, it may be considered accepted.

4. What does “approbate and reprobate” mean in the context of arbitration?

“Approbate and reprobate” refers to the legal principle that a party cannot take contradictory positions in a legal proceeding. In arbitration, it means you cannot accept an arbitrator’s appointment or participate in proceedings without objection, and then later challenge their jurisdiction or the tribunal’s composition if the outcome is unfavorable.

5. How does this Supreme Court ruling affect the efficiency of arbitration?

This ruling significantly enhances the efficiency and finality of arbitration proceedings. By mandating that jurisdictional objections be raised early, it prevents parties from using belated challenges as a tactic to delay proceedings or overturn awards on technical grounds, thereby reinforcing arbitration as a swift dispute resolution mechanism.

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