FILING APPEAL AGAINST THE ORDER OF ARBITRATOR ON LIMITATION

In M/s. MCM Worldwide Private Limited Versus M/s. Construction Industry Development Council - 2026 (5) TMI 260 - Supreme Court, the appellant and the respondent in the present civil appeal entered into a Memorandum of Understanding. The agreement provides that the disputes arised between the parties shall be settled by means of arbitration.

The appellant filed a civil suit for the recovery of dues from the respondent but the respondent invoked the provisions of arbitration for the appointment of arbitrator as per the Memorandum of agreement entered into between both the parties. However, the respondent failed to appoint his arbitrator. Therefore, the appellant approached the High Court for the appointment of sole arbitrator under Section 11(6) of the Act. The High Court appointed a sole arbitrator.

The arbitrator commenced the arbitration proceedings. The arbitrator framed the issues to be decided in the arbitration. The respondent filed an application before the Arbitrator 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. The arbitrator dismissed the said application on 16.04.2022. The respondent challenged the said order before the District Judge. The said application was rejected by the District Judge on 11.11.2022.  The District Judge held that the impugned order was not amenable to challenge under Section 34 of the Arbitration Act.

The respondent challenged the order of District Judge before the High Court which also dismissed the application filed by the respondent. The High Court directed the respondent to file an application before the Arbitrator under Section 16 of the Act.  As per the directions of the High Court, the respondent filed an application before the Arbitrator.  The respondent prayed the Arbitrator to dismiss the claim filed by the applicant as the same is not maintainable since the Arbitrator is not having jurisdiction since the claim is barred by limitation. On 19.05.2023 the arbitrator dismissed the application filed by the respondent.

Against the said order the respondent filed an application before the District Judge. The appellant raised the issue of maintainability of this application under Section 34 of the Arbitration Act against an order passed under Section 16 thereof. The appellant contended that, in the scheme of the Arbitration Act, 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 respondent reiterated that the application under section 34 is maintainable.

On going through the application filed by the respondent, the District Judge dismissed the application on 26.03.2024. The respondent challenged the said order before the High Court by filing an appeal under Section 37 of the Act. The judgment dated 08.05.2025 of the Division Bench, allowing the appeal, focused on the merits, without addressing the essential issue as to whether the case was proceeding on the right track. Therefore, the appellant filed the present appeal before the Supreme Court challenging the order of Divisional Bench of the High Court.

The Supreme Court, on consideration of the submission of the parties, was of the opinion that the District Judge and High Court was not correct in entertaining the matters under Sectio 34 of the Act. The Supreme Court analysed the provisions of Section 16 of the Act.

• Section 16(1) of the Act provides that the arbitral tribunal may rule on its own jurisdiction, including ruling on any objection with respect to existence or validity of the arbitration agreement.
• Section 16(2) provides that a plea that the arbitral tribunal does not have jurisdiction should be raised not later than the submission of the statement of defence, but a party would not be precluded from raising such a plea merely because he has appointed or participated in the appointment of the arbitrator.
• Section 16(3) provides that a plea that the arbitral tribunal is exceeding the scope of its authority should be raised as soon as the matter alleged to be beyond the scope of such authority is raised during the arbitral proceedings.
• Section 16(4) stipulates that, in either of the cases referred to in Section 16(2) or (3), the arbitral tribunal may admit a later plea, if it considers the delay justified.
• Section 16(5) categorically mandates that once the arbitral tribunal decides on a plea raised under Section 16(2) or (3) and where the arbitral tribunal rejects such plea, it shall continue with the arbitral proceedings and make an arbitral award.
• Section 16(6) states that the party aggrieved by such an arbitral award may then make an application for setting it aside in accordance with Section 34 of the Arbitration Act.

Section 37 of the Act 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.

The Supreme Court framed the issue to be decided in the present appeal is as to whether the respondent was entitled to file an application under Section 34 of the Arbitration Act against the Arbitrator’s order dated 19.05.2023 under Section 16(2), rejecting the plea that she lacked jurisdiction to continue with the arbitral proceedings. The Supreme Court observed that even though this issue has not been observed before the District Judge and Single Judge of High Court, the Division Bench ought to consider the same.

The Supreme Court was of the opinion that in the event a decision is made by an arbitrator determining one issue between the parties, it would have to be treated as an interim award as such issue stood finally determined between them and could not be re-adjudicated before the arbitrator again.

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. 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.

The plea of the District Judge that the rejection of a plea under Section 16(2) of the Arbitration Act must be treated as an interim award and the same can be subjected to challenge under Section 34 of the Arbitration Act. The Supreme Court observed that this is erroneous and unsustainable. Accepting such a construction would do violence to the very scheme of the Arbitration Act the Supreme Court observed that the same would render Section 37(2) thereof superfluous, as it is only an order accepting the plea of lack of jurisdiction under Section 16(2) or (3) that is amenable to appeal directly, without going through the process under Section 34 thereof. This crucial aspect of the matter was entirely lost sight of.

In view of the above, the Supreme Court held that 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. Therefore, the question of filing appeal under Section 37 of the Act also does not arise. The Supreme Court set aside the order of Division Bench. The Supreme Court directed 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.