The Gujarat High Court has decided that the issue of the Arbitrator's jurisdiction should be challenged as soon as possible, namely when the notice under Section 11 of the Arbitration and Conciliation Act, 1996 (A&C Act) for the appointment of an Arbitrator is served. The Single Bench of Justice A.G. Uraizee dismissed the argument that the issue of jurisdiction can be addressed at any time because it is a legal problem. The Court held that because the party had neither responded to the notice issued under Section 11 of the A&C Act nor participated in the arbitral proceedings to raise the issue of lack of jurisdiction of the Arbitrator, the arbitral award could not be set aside on the basis of lack of jurisdiction of the Arbitrator.
The Arbitral Tribunal rendered an arbitral award in favour of the respondent Mehul Industries. Leepee Enterprise, the appellant/award debtor, filed a motion to set aside the award under Section 34 of the A&C Act. The application filed by the appellant was dismissed by the Additional District Judge (ADJ), prompting the appellant to file an appeal with the Gujarat High Court under Section 37 of the A&C Act.
In the instant case titled LEEPEE Enterprise v. Mehul Industries the two issues raised before the High Court of Gujarat for clarification were:
Whether the jurisdiction of the Arbitrator can be invoked at any stage?
Whether the appellant can invoke Section 34?
Whether a bipartite arbitration agreement existed between the parties?
With regard to the first issue, the Court decided that the issue of the arbitrator's jurisdiction should be challenged as soon as possible, i.e. when the notice under Section 11 of the A&C Act is served. The Court found that the appellant adopted a casual approach to the arbitration procedures and did not participate in the arbitration proceedings. The Court dismissed the appellant's argument that the issue of jurisdiction can be addressed at any time because it is a legal issue. The Court held that the arbitral award could not be set aside on the basis of the Arbitrator's lack of jurisdiction because the appellant had not raised the issue of jurisdiction in response to the notice issued under Section 11 of the A&C Act, nor had it participated in the arbitral proceedings to raise the issue.
With regard to the second issue, the Court determined that Section 34 of the A&C Act had a very narrow scope for setting aside an arbitral judgement. The appellant had challenged the arbitral verdict solely on the grounds that the Arbitrator lacked jurisdiction because the parties' arbitration agreement was invalid. The Court concluded that the appellant's claim of the Arbitrator's lack of jurisdiction was a valid claim for setting aside the arbitral judgement under Section 34 (2) (a) I of the A&C Act. The Court did emphasise, however, that the party should raise the issue of the Arbitrator's lack of jurisdiction as soon as possible.
With regard to the third issue, the appellant had failed to raise any objection that there was no bipartite arbitration agreement between the parties or that the arbitration clause in the said invoice was unilateral and thus not binding on the appellant, according to the High Court, which noted that the appellant had failed to respond to the respondent's notice issued under Section 11 of the A&C Act for the appointment of the Arbitrator. The appellant did not attend before the Arbitrator or participate in the arbitration proceedings, and the Court raised the issue of the Arbitrator's jurisdiction based on an alleged unilateral arbitration provision.
The Court categorically held that,
"The appellant, therefore, as noted in the foregoing paragraph, did not participate in the proceedings of arbitration and raised the issue of jurisdiction of the Arbitrator on the basis of a so -called unilateral clause in the invoice. Such conduct on the part of the appellant speaks volume. The appellant, in my considered view, ought to have raised the issue of jurisdiction of the Arbitrator at the first available opportunity".
As a result, the Court dismissed the appellant's appeal.