Jurisdiction To Decide Cannot Mean To Decide In Particular Manner: Supreme Court Says Arbitral Tribunal’s Error On Nature Of Agreement Not Exceptional Case For Writ Interference
The Court reiterated that stamping objections fall within arbitral tribunal’s domain and errors on merits do not constitute jurisdictional error.
The Supreme Court has held that orders passed by arbitral tribunals under Section 16 of the Arbitration and Conciliation Act, 1996 cannot ordinarily be challenged in writ jurisdiction under Articles 226 and 227 of the Constitution of India, reiterating that judicial interference during arbitral proceedings must remain minimal and confined to exceptional circumstances. It further held that even if the tribunal’s view on the nature of the agreement is erroneous, it does not make the case “exceptional” for interference, and judicial review cannot be based merely on disagreement with the merits of the arbitral decision.
Upholding a Division Bench judgment of the Orissa High Court, the Court set aside the view taken by a Single Judge who had interfered with an arbitral tribunal’s decision and directed impounding of agreements on the ground of insufficient stamping. Placing reliance on the Constitution Bench decision in Re: Interplay Between Arbitration Agreements Under The Arbitration And Conciliation Act, 1996 and The Indian Stamp Act, 1899 2023 INSC 1066, the Court reaffirmed that objections relating to stamping fall within the jurisdiction of the arbitral tribunal and are curable in nature.
Justice J. K. Maheshwari and Justice Atul S. Chandurkar observed, “…It would, thus, be clear that the learned Arbitrator was duly empowered to decide the objection raised by the mine owner as regards insufficient stamping of the agreement. The jurisdiction to decide cannot mean to decide in a particular manner. While exercising such power, one may err on merits. Such error may not be one beyond jurisdiction. The learned Arbitrator was, thus, within his jurisdiction in not upholding the objection raised by the mine owner. It therefore cannot be said that there was any inherent lack of jurisdiction with the learned Arbitrator. Once it is found that the learned Arbitrator had the jurisdiction to decide the objection in relation to stamping of the agreements, in our view, it was impermissible for the learned Single Judge to undertake the exercise of entertaining a challenge to the said adjudication by proceeding to interpret the agreements…”.
“…Assuming that the learned Arbitrator erred in his conclusion that the agreement between the parties was ‘an agreement to sell’, that would not make the case ‘exceptional’ for being set aside in exercise of writ jurisdiction. Even on this count, the approach of the learned Single Judge is found to be incorrect”, it noted further.
Senior Advocate Shashank Garg appeared for the appellant and Senior Advocates Gopal Subramanium, N.K. Mody, Malvika Trivedi appeared for the respondent.
The dispute arose from an arbitration between a mine owner and an iron and steel company arising out of an agreement for sale of iron ore and supplementary contracts. During the arbitral proceedings, the mine owner raised an objection under Section 16 of the Arbitration and Conciliation Act, 1996 alleging that the agreements were insufficiently stamped and amounted to a conveyance, requiring proper stamp duty.
The arbitral tribunal rejected the objection and held that the documents were merely agreements to sell and duly stamped. This order was challenged by the mine owner before the High Court under Articles 226 and 227, where the Single Judge interfered and directed impounding of the agreements, but the Division Bench set aside that decision, leading to the present appeal before the Supreme Court.
Now, the Court considered, inter alia:
(a) Whether, in exercise of jurisdiction under Articles 226 and 227 of the Constitution, a challenge to an order passed under Section 16 of the Arbitration and Conciliation Act, 1996 is maintainable when the arbitral tribunal is seized of the proceedings; and
(b) Whether the Division Bench was justified in interfering with the Single Judge’s order setting aside the arbitral tribunal’s decision under Section 16.
Reiterating the statutory scheme of the Arbitration and Conciliation Act, the Supreme Court held that Section 16 empowers the arbitral tribunal to rule on its own jurisdiction, including objections relating to the existence or validity of the arbitration agreement.
“It was not open for the learned Single Judge in exercise of writ jurisdiction to enter into the merits of the dispute while adjudicating the challenge to an order passed under Section 16 of the A and C Act. It has to be noted that learned Arbitrator is still seized of the arbitration proceedings and the parties are yet to lead evidence therein”, the Bench noted.
“…Suffice it to observe that the remedy available under Section 34 of the A and C Act could be invoked by the party aggrieved and all contentions could be raised at that stage. Section 16(6) read with Section 34 of the A and C Act takes care of such contingency…”, it observed further.
Concluding that the arbitral tribunal was well within its jurisdiction to decide the objection under Section 16, the Court held that the Single Judge had exceeded the permissible limits of writ jurisdiction by entering into contractual interpretation and merits of the dispute.
Cause Title: M/s Tarini Prasad Mohanty Appellant v. M/s Sunflag Iron And Steel Respondent Company Limited (Neutral Citation: 2026 INSC 566)
Appearances:
Appellant: Shashank Garg, Senior Advocate.
Respondent: Gopal Subramanium, N.K. Mody, Malvika Trivedi, Senior Advocates.