C.S Dias, J
1. The original petition is filed aggrieved by Exhibit P9 passed by the sole Arbitrator in A.R.C No.112/2019 under Section 16 of the Arbitration and
Conciliation Act, 1996 (in short ‘Act’), ruling that he has the jurisdiction to adjudicate the claim petition.
2. The skeletal facts relevant for the determination of the original petition are:
(i) The petitioner is the respondent in A.R.C No.112/2019, filed by the respondent before the sole Arbitrator. The petitioner and the respondent had
entered into Exhibit P1 deed of partnership. The respondent had filed O.S No.64/2017 (Exhibit P2) before the Court of the Subordinate Judge,
Kozhikode, alleging that the petitioner had to pay him an amount of Rs.17,50,000/-. The petitioner appeared in the suit and filed I.A No.1781/2017,
under Sec.8 (1) of the Act, contending that in view of Clause 17 (e) of Exhibit P1 deed of partnership, the parties had agreed to resolve their disputes
through arbitration. Hence, the suit was not maintainable. The civil court, by Exhibit P3 order, allowed the application and by Exhibit P4 judgment
referred the parties to arbitration.
(ii) The respondent approached this Court and filed A.R No.112/2019 to appoint an Arbitrator. By Exhibit P5 judgment, this Court had appointed a sole
Arbitrator to adjudicate the disputes between the parties.
(iv) Consequently, the respondent has filed Exhibit P6 claim petition before the sole Arbitrator. The petitioner has appeared and filed Exhibit P7
statement challenging the maintainability of the claim petition on the ground that the sole Arbitrator does not have the jurisdiction to order the
dissolution of the firm.
(v) The petitioner then filed O.P(C)No.101/2022 before this Court to direct the sole Arbitrator to decide his own jurisdiction as a preliminary issue. By
Exhibit P8 judgment, this Court directed the sole Arbitrator to rule on his own jurisdiction as a preliminary issue.
(vi) The sole Arbitrator by the impugned Exhibit P9 order has held that the dispute is arbitrable. Exhibit P9 is patently erroneous. Hence, the original
petition.
3. Heard; Sri.Premnath, the learned counsel appearing for the petitioner.
4. Sri.Premnath argued that in the light of the law laid down by this Court in Kadeeja vs Manjusha [2018 (2) KLT 145], wherein a learned Single
Judge of this Court has held that the dissolution of partnership firm is a statutory remedy and a declaration to the effect is a judgment in rem. In such
matters, only the civil court has the jurisdiction. Even though the respondent had sought the realisation of Rs.17,50,000/- from the petitioner, his
entitlement to the amount can be decided only after the dissolution of the firm. Hence, the Arbitrator does not have jurisdiction to adjudicate the said
dispute. Thus, Exhibit P9 is wrong and liable to be set aside.
5. The respondent had instituted Exhibit P2 before the civil court for a decree for recovery of Rs.17,50,000/- from the petitioner, on the allegation that
the petitioner had agreed to pay him an amount of Rs.19,50,000/- for retiring from the firm, but the petitioner paid him only an amount of Rs.2,00,000/-
and refused to pay the balance amount. On receipt of the summons from the civil court, the petitioner filed I.A.No.1781/2017, contending that the
petitioner and respondent had agreed to resolve their disputes through arbitration as per Clause 17(e) of Exhibit P1. The civil court accepted the plea
and relegated the parties to arbitration. Thereafter, this Court, by Ext P5 order, appointed the sole Arbitrator to adjudicate the dispute between the
parties. Accordingly, the respondent has filed Exhibit P6 claim petition before the sole Arbitrator. Then, the petitioner has objected to the claim petition
by filing Exhibit P7 statement stating that the dispute is not arbitrable because the amount can be paid to the respondent only after the firm is dissolved,
which is beyond the jurisdiction of the Arbitrator. However, by Ext P9 order, the Arbitrator has ruled that he has the jurisdiction to adjudicate the claim
petition.
6. Section 16 of the Arbitration and Conciliation Act, 1996, reads as follows:
“16. Competence of arbitral tribunal to rule on its jurisdiction.â€" (1) 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,â€
(a) an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract; and
(b) a decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause.
(2) A plea that the arbitral tribunal does not have jurisdiction shall be raised not later than the submission of the statement of defence; however, a party shall not be
precluded from raising such a plea merely because that he has appointed, or participated in the appointment of, an arbitrator.
(3) 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.
(4) 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.
(5) 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.
(6) A party aggrieved by such an arbitral award may make an application for setting aside such an arbitral award in accordance with Section 34.â€
7. Section 16 (5) of the Act provides that if the Arbitrator accepts the plea under Sections 16 (2) or (3) of the Act, he needs to pass an award; if not,
he has to continue with the proceeding. A party aggrieved by an award passed by the Arbitrator accepting a plea under Sections 16 (2) or (3) of the
Act has a right to challenge the award under Section 34 of the Act and challenge the order passed under Sections 16 (2) or (3) by filing an appeal
under Section 37 (2) (a) of the Act. But a person whose plea is rejected under Sections 16 (2) and (3) of the Act must wait until the final award is
passed to challenge the Arbitrator's jurisdiction.
8. The above question is no longer res integra in the light of the declaration of law by the Honourable Supreme Court in Deep Industries Ltd v. Oil and
Natural Gas Corporation Ltd and another [(2020) 15 SCC 706], which reads thus:
“22. One other feature of this case is of some importance. As stated hereinabove, on 9-5-2018, a Section 16 application had been dismissed by the learned
arbitrator in which substantially the same contention which found favour with the High Court was taken up. The drill of Section 16 of the Act is that where a Section
16 application is dismissed, no appeal is provided and the challenge to the Section 16 application being dismissed must await the passing of a final award at which
stage it may be raised under Section 34. What the High Court has done in the present case is to invert this statutory scheme by going into exactly the same matter as
was gone into by the arbitrator in the Section 16 application, and then decided that the two-year ban/blacklisting was no part of the notice for arbitration issued on 2-
11-2017, a finding which is directly contrary to the finding of the learned arbitrator dismissing the Section 16 application. For this reason alone, the judgment under
appeal needs to be set aside. Even otherwise, as has been correctly pointed out by Mr Rohatgi, the judgment under appeal goes into the merits of the case and states
that the action of putting the Contractor and his Directors “on holiday†is not a consequence of the termination of the agreement. This is wholly incorrect as it is
only because of the termination that the show-cause notice dated 18- 10- 2017 proposing to impose a two-year ban/blacklisting was sent. Even otherwise, entering
into the general thicket of disputes between the parties does not behove a court exercising jurisdiction under Article 227, where only jurisdictional errors can be
corrected. Therefore to state that the ban order was passed under a General Contract Manual and not Clause 18 of the agreement, besides being incorrect, would also
be incorrect for the reason that the General Contract Manual does not mean that such order was issued as an administrative order invoking the executive power, but
was only as an order which emanated from the contract itself. Further to state that “serious disputes†as to jurisdiction seem to have cropped up is not the same
thing as saying that the Arbitral Tribunal lacked inherent jurisdiction in going into and deciding the Section 17 application. In point of fact, the Arbitral Tribunal was
well within its jurisdiction in referring to the contract and the ban order and then applying the law and finally issuing the stay order. Even if it be accepted that the
principle laid down by Section 41( e) of the Specific Relief Act was infracted, in that damages could have been granted, as a result of which an injunction ought not to
have been issued, is a mere error of law and not an error of jurisdiction, much less an error of inherent jurisdiction going to the root of the matter. Therefore, even
otherwise, the High Court judgment cannot be sustained and is set aside.
23. We reiterate that the policy of the Act is speedy disposal of arbitration cases. The Arbitration Act is a special Act and a self-contained code dealing with
arbitration. This Court in Fuerst Day Lawson Ltd. [Fuerst Day Lawson Ltd. v. Jindal Exports Ltd., (2011) 8 SCC 333 : (2011) 4 SCC (Civ) 178] , has specifically held as
follows: (SCC p. 371, para 89)
“89. It is, thus, to be seen that Arbitration Act, 1940, from its inception and right through to 2004 (in P.S. Sathappan [P.S. Sathappan v. Andhra Bank Ltd., (2004) 11
SCC 672] ) was held to be a self-contained code. Now, if the Arbitration Act, 1940 was held to be a self- contained code, on matters pertaining to arbitration, the
Arbitration and Conciliation Act, 1996, which consolidates, amends and designs the law relating to arbitration to bring it, as much as possible, in harmony with the
UNCITRAL Model must be held only to be more so. Once it is held that the Arbitration Act is a self-contained code and exhaustive, then it must also be held, using
the lucid expression [S.N. Srikantia & Co. v. Union of India, 1965 SCC OnLine Bom 133 : AIR 1967 Bom 347] of Tulzapurkar, J., that it carries with it
‘19. … a negative import that only such acts as are mentioned in the Act are permissible to be done and acts or things not mentioned therein are not permissible to
be done. …’ (S.N. Srikantia & Co. case [ S.N. Srikantia & Co. v. Union of India, 1965 SCC OnLine Bom 133 : AIR 1967 Bom 347] , SCC OnLine Bom para 19)
In other words, a letters patent appeal would be excluded by the application of one of the general principles that where the special Act sets out a self-contained code
the applicability of the general law procedure would be impliedly excluded.â€
What becomes clear is that had the High Court itself disposed of the first appeal in the present case, no Article 227 petition could possibly lie â€" all that could
perhaps have been done was to file an LPA before a Division Bench of the same High Court. This, as we have seen, has specifically been interdicted by Fuerst Day
Lawson Ltd. [Fuerst Day Lawson Ltd. v. Jindal Exports Ltd., (2011) 8 SCC 333 : (2011) 4 SCC (Civ) 178] Merely because, on the facts of this case, the first appeal was
disposed of by a court subordinate to the High Court, an Article 227 petition ought not to have been entertained.
9. In addition to the law laid down in Deep Industries Ltd, it is to be noted the Parliament has, in its wisdom, consciously omitted to provide any
remedy to a person whose plea under Sections 16 (2) and (3) has been rejected, until the final award is passed probably to avoid stalling of the arbitral
process.
10. The question is whether this Court can interfere with an order passed by an Arbitrator under Section 16 (2) and (3) of the Act, under Article 227
of the Constitution of India. We find an answer to the question again in paragraphs 16 and 17 in Deep Industries Ltd, which reads as follows:
“16. Most significant of all is the non obstante clause contained in Section 5 which states that notwithstanding anything contained in any other law, in matters
that arise under Part I of the Arbitration Act, no judicial authority shall intervene except where so provided in this Part. Section 37 grants a constricted right of first
appeal against certain judgments and orders and no others. Further, the statutory mandate also provides for one bite at the cherry, and interdicts a second appeal
being filed [see Section 37(2) of the Act].
17. This being the case, there is no doubt whatsoever that if petitions were to be filed under Articles 226/227 of the Constitution against orders passed in appeals
under Section 37, the entire arbitral process would be derailed and would not come to fruition for many years. At the same time, we cannot forget that Article 227 is a
constitutional provision which remains untouched by the non obstante clause of Section 5 of the Act. In these circumstances, what is important to note is that
though petitions can be filed under Article 227 against judgments allowing or dismissing first appeals under Section 37 of the Act, yet the High Court would be
extremely circumspect in interfering with the same, taking into account the statutory policy as adumbrated by us hereinabove so that interference is restricted to
orders that are passed which are patently lacking in inherent jurisdictionâ€.
11. Recently, in Bhavan Construction v. Executive Engineer, Sardar Sarovar Narmada Nigam Ltd [(2022) 1 SCC 75], the
Hon’ble Supreme Court has, in a case of identical nature, held as follows:
“17. Thereafter, Respondent 1 chose to impugn the order passed by the arbitrator under Section 16(2) of the Arbitration Act through a petition under Articles
226/227 of the Indian Constitution. In the usual course, the Arbitration Act provides for a mechanism of challenge under Section 34. The opening phase of Section 34
reads as
“34. Application for setting aside arbitral award.â€"(1) Recourse to a Court against an arbitral award may be made only by an application for setting aside such
award in accordance with sub-section (2) and sub-section (3)â€.
(emphasis supplied)
The use of term “only†as occurring under the provision serves two purposes of making the enactment a complete code and lay down the procedure.
18. In any case, the hierarchy in our legal framework, mandates that a legislative enactment cannot curtail a constitutional right. In Nivedita Sharma v. COAI [Nivedita
Sharma v. COAI, (2011) 14 SCC 337 : (2012) 4 SCC (Civ) 947] , this Court referred to several judgments and held : (SCC p. 343, para 11)
“11. We have considered the respective arguments/submissions. There cannot be any dispute that the power of the High Courts to issue directions, orders or
writs including writs in the nature of habeas corpus, certiorari, mandamus, quo warranto and prohibition under Article 226 of the Constitution is a basic feature of the
Constitution and cannot be curtailed by parliamentary legislation â€" L. Chandra Kumar v. Union of India [L. Chandra Kumar v. Union of India, (1997) 3 SCC 261 :
1997 SCC (L&S) 577] . However, it is one thing to say that in exercise of the power vested in it under Article 226 of the Constitution, the High Court can entertain a
writ petition against any order passed by or action taken by the State and/or its agency/instrumentality or any public authority or order passed by a quasi-judicial
body/authority, and it is an altogether different thing to say that each and every petition filed under Article 226 of the Constitution must be entertained by the High
Court as a matter of course ignoring the fact that the aggrieved person has an effective alternative remedy. Rather, it is settled law that when a statutory forum is
created by law for redressal of grievances, a writ petition should not be entertained ignoring the statutory dispensation.â€
(emphasis supplied)
It is therefore, prudent for a Judge to not exercise discretion to allow judicial interference beyond the procedure established under the enactment. This power
needs to be exercised in exceptional rarity, wherein one party is left remediless under the statute or a clear “bad faith†shown by one of the parties. This high
standard set by this Court is in terms of the legislative intention to make the arbitration fair and efficient.
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22. The High Court did not appreciate the limitations under Articles 226 and 227 of the Constitution and reasoned that the appellant had undertaken to appoint an
arbitrator unilaterally, thereby rendering Respondent 1 remediless. However, a plain reading of the arbitration agreement points to the fact that the appellant herein
had actually acted in accordance with the procedure laid down without any mala fides.
23. Respondent 1 did not take legal recourse against the appointment of the sole arbitrator, and rather submitted themselves before the tribunal to adjudicate on the
jurisdiction issue as well as on the merits. In this situation, Respondent 1 has to endure the natural consequences of submitting themselves to the jurisdiction of the
sole arbitrator, which can be challenged, through an application under Section 34. It may be noted that in the present case, the award has already been passed during
the pendency of this appeal, and Respondent 1 has already preferred a challenge under Section 34 to the same. Respondent 1 has not been able to show any
exceptional circumstance, which mandates the exercise of jurisdiction under Articles 226 and 227 of the Constitution.
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26. It must be noted that Section 16 of the Arbitration Act, necessarily mandates that the issue of jurisdiction must be dealt first by the tribunal, before the court
examines the same under Section 34. Respondent 1 is therefore not left remediless, and has statutorily been provided a chance of appealâ€.
12. On an appreciation of the scheme of the Act, the pleadings and materials on record and ratio decidendi in Deep Industries Ltd and Bhavan
Construction (supra), this Court does not find any ground of exceptional rarity in the original petition warranting interference by this Court under
Article 227 of the Constitution of India.
13. Finally, the decision relied on by the learned counsel appearing for the petitioner in Kadeeja v. Manjusha, is no longer good law in the light of the
Division Bench decision of this Court in Kasim V.K vs. M.Ashraf [2021 (3) KLT 35], wherein the Division Bench of this Court has followed the
decision of the Hon’ble Supreme Court in V.H Patel and Co., & Ors vs. Hirubhai Himabhai Patel and Ors [(2000) 4 SCC 368] and has held that
the dissolution of a partnership firm is an action in personam, and not in rem. Moreover, the learned Single Judge has rendered Kadeeja v. Manjusha,
without adverting to the decisions of the Honourable Supreme Court in Erach F.D.Mehta v. Minoo F.D.Mehta, [(1970) 2 SCC 724]; Vidya Drolia and
Ors Vs. Durga Trading Corporation, [(2021) 2 SCC 1] and the decisions of the various High Courts relied on by the Honourable Supreme Court in
M.D.Forzen Foods Exports Pvt Ltd and Ors v. Hero FinCorp Ltd [(2017) 16 SCC 741]. Therefore, I hold that Kadeeja v. Manjusha was rendered in
the peculiar facts and circumstances of that case.
14. Being fully conscious of the fact that the arbitration proceeding is pending before the sole Arbitrator and has a long way to go, I restrain myself
from expressing anything more on Exhibit P9 order. Yet, I cannot be without remarking that the petitioner cannot make the respondent to run in
circles, from pillar to post, by raising unsustainable objections. The original petition is groundless. Without prejudice to the right of the petitioner to work
out his remedies in accordance with law, the original petition is dismissed.
