Source: Supreme Court 

Why in News? 

A bench of Justice Abhay S Oka and Justice Ujjal Bhuyan held that the challenge to the jurisdiction of the arbitral tribunal cannot be raised after submitting the statement of defence.                         

• The Supreme Court held this in the case of M/s Vidyawati Construction Company v. Union of India (2025). 

What was the Background of M/s Vidyawati Construction Company v. Union of India Case?  

• The Appellant contracted to construct a building for Railway Electrification Project, Allahabad. 
• There was a dispute regarding payment to the appellant. 
• The original arbitration clause specified three arbitrators. 
• The Chief Justice initially appointed two arbitrators and directed them to appoint an umpire. 
• When original umpire resigned, Chief Justice appointed a retired High Court Chief Justice as sole arbitrator. 
• The proceedings began before the sole arbitrator. 
• The Respondent raised the objection regarding jurisdiction after filing the statement for defence, arguing that the contract required three arbitrators. 
• The above objection was rejected by the sole arbitrator. 
• The award was ultimately granted on 21st February 2008. 
• This award was challenged by the respondent on various grounds by filing a petition before the District Judge under Section 34 of the Arbitration and Conciliation Act, 1996 (A & C Act). 
• The District Judge set aside the award merely on the ground that the composition of the Arbitral Tribunal was illegal as sole arbitrator could not have been appointed. 
• This decision was confirmed by the High Court when the appeal was filed under Section 37 of the A & C Act. 
• Thus, the matter was before the Supreme Court. 

What were the Court’s Observations?  

• The Court observed that the respondent has agreed in so many words that the arbitrator appointed was to act as the sole arbitrator. 
• A specific agreement on the part of the respondent has been recorded in the proceedings. 
• Further, the Court noted that Section 16 (2) of the A & C Act puts a bar on raising a plea of lack of jurisdiction after submitting the statement of claim. 
• Hence, the objection raised by the application was rightly rejected by the Learned Arbitrator. 
• Thus, the Court in view of the respondent’s conduct and Section 16 (2) A & C Act, Section 34, Section 37 of A &C Act Courts were not right in upholding the objections of the respondents.

What is Section 16 of the A & C Act? 

• Section 16 of the A & C Act lays down the competence of arbitral tribunal to rule on its jurisdiction. 
• Section 16 (1) lays down that the arbitral tribunal may rule on its own jurisdiction including ruling on any objections with respect to the existence or validity of the arbitration agreement, and for that purpose, —  
  • an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract; and  
  • a decision by the arbitral tribunal that the contract is null, and void shall not entail ipso jure the invalidity of the arbitration clause. 
• Section 16 (2) of the Act provides that a party must raise a plea challenging the tribunal’s jurisdiction no later than submitting the statement of defence. 
  • However, appointing or participating in the appointment of an arbitrator does not bar a party from raising such a plea. 
• Section 16 (3) provides that a plea that the arbitral tribunal is exceeding the scope of its authority shall be raised as soon as the matter alleged to be beyond the scope of its authority is raised during the arbitral proceedings. 
• Section 16 (4) provides that the arbitral tribunal may, in either of the cases referred to in sub-section (2) or sub-section (3), admit a later plea if it considers the delay justified. 
• Section 16 (5) provides that the arbitral tribunal shall decide on a plea referred to in sub-section (2) or sub-section (3) and, where the arbitral tribunal takes a decision rejecting the plea, continue with the arbitral proceedings and make an arbitral award. 
• Section 16 (6) provides that a party aggrieved by such an arbitral award may make an application for setting aside such an arbitral award in accordance with section 34. 

What are the Landmark Cases Based on Section 16 of the A & C Act?

• Surender Kumar Singhal v. Arun Kumar Bhalothia (2021): 
  • The Delhi High Court in this case reiterated the principle of Kompetenz- Kompetenz which provides that the Arbitral Tribunal has authority to decide on it’s own jurisdiction. 
  • Objections to the tribunal's jurisdiction under Section 16 must be addressed by the tribunal. 
  • Further, the tribunal should decide on such objections promptly or treat them with urgency as a preliminary issue, depending on the specifics of the case. 
• National Aluminium Company Limited v. Subhash Infra Engineers (2019): 
  • The Supreme Court in this case held that objections regarding the existence or validity of an arbitration agreement can only be raised through an application under Section 16 of the Arbitration and Conciliation Act.