Article 227 revision against arbitral tribunal's section 16 order not maintainable absent patent lack of inherent jurisdiction: Supreme court

Supreme Court Rules on Article 227: Revising Arbitral Tribunal Orders Requires Clear Lack of Jurisdiction, Featuring adrEdge's Legal Insight Platform.

Case Title: Manash Kamal Bezboruah v. Bokahola Tea Company Pvt. Ltd. and Ors.

The Supreme Court has held that a High Court, while exercising supervisory jurisdiction under Article 227 of the Constitution against an Arbitral Tribunal's order rejecting an application under Section 16 of the Arbitration and Conciliation Act, 1996, must exercise extreme circumspection and can interfere only where the order suffers from a patent lack of inherent jurisdiction.

A dispute arose between partners of a tea business regarding rendition of accounts and alleged mismanagement. A civil suit filed by the appellant led to an application under Section 8 of the Arbitration and Conciliation Act, 1996 by one of the respondents, which was rejected by the trial court and the High Court on the ground that several defendants were non-signatories to the arbitration agreement. On appeal, the Supreme Court, by a consent order dated 21.11.2024, referred the disputes to arbitration and appointed a Sole Arbitrator. The respondent companies, though parties to that appeal, had not contested it.

During arbitration, the respondent companies filed applications before the Arbitral Tribunal seeking deletion of their names from the array of parties on the ground that they were non-signatories to the arbitration agreement. The Tribunal rejected these applications, holding that the Supreme Court's consent order referring all parties to arbitration left no scope for it to reconsider whether non-signatories could be subjected to arbitration.

The respondent companies challenged the Tribunal's order before the Gauhati High Court by way of a revision petition under Article 227 of the Constitution. The High Court stayed the notices issued to the respondent companies and, while rejecting the appellant's objection to maintainability, held that since the Tribunal's order appeared to suffer from a patent lack of inherent jurisdiction, the High Court's supervisory jurisdiction under Article 227 was not ousted.

Before the Supreme Court, the appellant argued that the respondent companies were estopped from challenging the arbitral reference made by consent, having failed to contest the earlier appeal despite being served, and that the High Court's interference under Article 227 to stay the arbitral proceedings amounted to an abuse of process. It was argued that the proper remedy against rejection of a Section 16 application is to challenge it under Section 34 of the Act after the award, and that no perversity existed in the Tribunal's order to warrant interference.

The respondent companies argued that they did not satisfy the test of a veritable party to the arbitration agreement, that the Supreme Court's consent order was intended to bind only those who had appeared and consented, and that the Tribunal's assumption of jurisdiction based on their mere non-appearance before the Supreme Court fell within the narrow band of perversity justifying High Court interference.

The Court referred to its decisions holding that the Arbitration and Conciliation Act, 1996 is a self-contained code embodying minimal judicial interference, and that the doctrine of kompetenz-kompetenz under Section 16 empowers an Arbitral Tribunal to rule on its own jurisdiction. It held that while Article 227 is a constitutional power that cannot be ousted by Section 5 of the Act, the High Court must ordinarily await the final award and interfere at an interlocutory stage only where the Tribunal's order is patently lacking in inherent jurisdiction, such perversity being one that must stare one in the face.

The Court found that the High Court, while rejecting the objection to maintainability, had not recorded any specific finding of perversity or patent lack of inherent jurisdiction in the Tribunal's order. It held that the question of whether the respondent companies were veritable parties bound by the arbitration agreement, despite being non-signatories, was a matter squarely within the Tribunal's competence under Section 16 of the Act, and ought not to have been agitated by way of an Article 227 petition.

The Court also noted that the respondent companies, having been parties to the earlier appeal in which the consent order for arbitration was passed without their objection, could not raise a challenge at this stage instead of having sought modification or review of that order.

The Court accordingly set aside both impugned orders of the High Court and dismissed the revision petition, while directing the Arbitral Tribunal to independently decide the issue of the respondent companies' status in the arbitration and to complete the proceedings expeditiously.