Party Aggrieved By Arbitrator’s Rejection Of Jurisdictional Plea On Ground Of Limitation Must Wait Till Conclusion Of Proceedings To Challenge It: Supreme Court

The Apex Court was considering an appeal where matters were entertained by the District Judge and the Division Bench under Section 34 and, thereafter, under Section 37 of the Arbitration Act.

The Division Bench of Justice Sanjay Kumar and Justice K. Vinod Chandran held, “However, if an arbitrator deals with the very same issue of limitation on an application filed under Section 16 of the Arbitration Act, on the ground that the arbitrator lacks jurisdiction on that count, it would be traceable to Section 16(2) of the Arbitration Act and if the arbitrator rejects that plea, Sections 16(5) and Section 16(6) would apply. In that situation, there is no option for the party aggrieved by the decision of the arbitrator upon the application filed under Section 16 except to wait till the conclusion of the arbitral proceedings and then raise that issue by way of an application under Section 34 against the final award.”

Advocate Shreyan Das represented the Appellant, while Senior Advocate Nikhil Nayyar represented the Respondent.

Factual Background

The arbitration, in this case, commenced between the parties upon the appointment of a sole Arbitrator by the Delhi High Court in the context of the disputes arising under the Memorandum of Understanding (MoU) of the respondent, M/s. Construction Industry Development Council, with Employment Generation and Marketing Mission, Department of Rural Development, Government of Andhra Pradesh. The appellant, M/s. MCM Worldwide Private Limited had earlier filed a suit for recovery of its alleged dues before the District & Session Judge, but the respondent filed an application therein under Section 8 to refer the parties to arbitration in terms of the arbitration clause in the MoU. A sole arbitrator was appointed. At the stage of framing of issues by the Arbitrator, the respondent filed an application under Order VII, Rule 11 of the Code of Civil Procedure, 1908, seeking rejection of the appellant’s claim petition on the ground that its claims were barred by limitation, but the same was dismissed. The respondent filed an application under Section 34 of the Arbitration Act before the District Judge, which was rejected.

The respondent’s appeal was dismissed, but pursuant to the liberty granted, the respondent filed an application before the Arbitrator under Section 16 seeking dismissal of the statement of claim. This application was dismissed by the Arbitrator. Aggrieved thereby, the respondent again filed an application under Section 34 before the District Judge. The appellant raised the issue of the maintainability of this application under Section 34 against an order passed under Section 16, arguing that an order rejecting the contention that the arbitrator lacked jurisdiction could only be assailed after the award was made by the arbitrator, upon conclusion of the arbitral proceedings, and not prior thereto. The District Judge dismissed the respondent’s application under Section 34, and the Division Bench of the Delhi High Court allowed the appeal under Section 37. The said judgment was called in question before the Apex Court.

Reasoning

The Bench, at the outset, stated, “Having given our earnest consideration to the matter, we are of the opinion that neither the learned District Judge nor the Division Bench were correct in entertaining the matters brought before them, i.e., under Section 34 and, thereafter, under Section 37, of the Arbitration Act.”

The Bench explained that Section 16 of the Arbitration Act is titled ‘Competence of arbitral tribunal to rule on its jurisdiction’ and Section 16(1) provides 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. The Bench further noted that Section 37 of the Arbitration Act, titled ‘Appealable orders’, provides for an appeal being filed only in the event an arbitrator upholds the plea of lack of jurisdiction under Section 16(2) or (3), i.e., where the arbitrator puts an end to the arbitration proceedings by accepting the plea that he/she has no jurisdiction to proceed further.

Reference was made to the judgment in Indian Farmers Fertilizer Cooperative Limited vs. Bhadra Products (2018) wherein it has been observed that a decision of the arbitrator on limitation, taken up as a preliminary issue, would amount to an interim award which would be amenable to challenge under Section 34 of the Arbitration Act. “This is logical as that issue, once it stands decided, would no longer figure for consideration before the arbitrator and would, therefore, not be dealt with again in the final award that would be passed by the arbitrator. Unless such decision is treated as an interim award, there would be no scope for the party aggrieved thereby to challenge the correctness thereof”, the Bench stated.

The Bench also clarified that when an arbitrator deals with the very same issue of limitation on an application filed under Section 16 of the Arbitration Act, on the ground that the arbitrator lacks jurisdiction on that count, the aggrieved party must wait till the conclusion of the arbitral proceedings and then raise that issue by way of an application under Section 34 against the final award.

The Bench thus stated, “On the above analysis, the respondent was not entitled to file an application under Section 34 of the Arbitration Act against the order dated 19.05.2023 passed by the learned Arbitrator rejecting its plea of lack of jurisdiction on the ground of limitation. As the said application was not even maintainable, the question of an appeal under Section 37 of the Arbitration Act being entertained against the decision passed thereon did not arise.”

Holding that the Delhi High Court erred in overlooking this crucial aspect and in deciding the appeal on merits, the Bench allowed the appeal, set aside the impugned judgment and ordered, “It would be open to the respondent to test the validity of the order dated 19.05.2023 passed by the learned Arbitrator only after passing of the final award and if the situation so warrants, by way of an application under Section 34 of the Arbitration Act.”

Cause Title: M/s. MCM Worldwide Private Limited v. M/S. Construction Industry Development Council (Neutral Citation: 2026 INSC 425)

Appearance

Appellant: Advocates Shreyan Das, Rishi Raj, AOR Mohini Priya

Respondent: Senior Advocate Nikhil Nayyar, Advocates N.K. Kantawala, Prakhar Sharma, Satyendra Chahar, Amaya M. Nair, AOR Anu Gupta

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