• Subhrotosh Banerjee

UNDERSTANDING THE KOMPETENZ-KOMPETENZ PRINCIPLE


Introduction: The principle of Kompetenz-Kompetenz conveys in its core the ‘power to determine jurisdiction’. In the arbitral context, it must be acknowledged that the arbitral tribunal’s decision on jurisdiction is generally subject to court control at the seat of the arbitration that is being conducted, whether it be such that it is immediately upon the arbitral tribunal’s jurisdictional determination, or subsequently, once the award on the merits has been made. But this does not deprive arbitral tribunals of Kompetenz-Kompetenz. If there is no challenge to the arbitral tribunal’s Kompetenz-Kompetenz decision, it takes effect within the state of the seat and the award which follows is credited under the New York Convention in the same way as an award from an arbitral tribunal whose Kompetenz-Kompetenz was challenged before the courts of the seat but upheld.

It should be observed here that Kompetenz-Kompetenz must be broad ratione materiae – at least as broad as any potential jurisdiction which the arbitral tribunal may take. Any constriction removing Kompetenz-Kompetenz over some question over which jurisdiction could potentially be taken will cheerfully be exploited by respondents to delay and bedevil proceedings. However, given the inherent nature of the concept and rationale of arbitral Kompetenz-Kompetenz, the application of the same must necessarily be broad if it is to be of any use, and basing it on the will of the parties makes it logically insufficient to encompass Kompetenz-Kompetenz determinations on the operability of such will and to give desirable effect to arbitral decisions denying jurisdiction due to the inoperability of party will.

Kompetenz-Kompetenz Principle In The Indian Context: In the context of the principle of kompetenz-kompetenz, it is pertinent to note the scope of powers exercised by a judicial authority appointing an arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996, which has been constantly changing shape. Prior to the Arbitration and Conciliation (Amendment) Act, 2015, since the text of the section itself did not provide much clarity as to the issues that may be examined in allowing or rejecting an application under Section 11, the law in this regard had evolved only through case laws.

The Supreme Court in its decision in the case of SBP & Co. v. Patel Engineering Ltd.,[1] had defined the scope of power exercised under Section 11 as follows:

  1. “determining whether there is a valid arbitration agreement between the parties;

  2. determining whether the party which has made the request under Section 11, is a party to the arbitration agreement; and

  3. whether the party making the motion had approached the appropriate High Court”

Further, it was held that all threshold issues with respect to jurisdiction, the existence of the agreement, whether the claim was a dead one; a time barred claim sought to be resurrected; or whether the parties had concluded the transaction by recording satisfaction of their mutual rights and obligations, and received the final payment without objection, under Section 11, at the pre-reference stage would be examined by a court while deciding an application seeking appointment of an arbitrator under Section 11. The court, in this case, held that Section 16 is said to be the recognition of the customary principle of arbitral law, Kompetenz-Kompetenz. The fact that the Arbitral Tribunal has the competence to rule on its own jurisdiction and to define the contours of its jurisdiction, only means that when such issues arise before it, the Tribunal can, and possibly, ought to decide them.

However, the caveat as pointed by the court in the aforementioned judgement is that this can happen only when the parties have gone to the Arbitral Tribunal without recourse to Section 8 or 11 of the Act. But where the jurisdictional issues are decided under these sections, before a reference is made, Section 16 cannot be held to empower the Arbitral Tribunal to ignore the decision given by the judicial authority or the Chief Justice before the reference to it was made. The competence to decide does not enable the Arbitral Tribunal to get over the finality conferred on an order passed prior to its entering upon the reference by the very statute that creates it. The court laid down that this was in fact the position that was arising out of Section 11(7) of the Act read with Section 16 thereof. The finality given to the order of the Chief Justice on the matters within his competence under Section 11 of the Act is incapable of being reopened by the Arbitrator over the course of the proceeding before the tribunal. However, since the case held that it is in fact the court that is empowered to appoint an arbitrator to decide threshold issues pertaining to jurisdiction, the case had the effect of undermining the importance of the kompetenz-kompetenz principle enshrined in Section 16 of the Act.

Since this case laid the law, the law commission in its 246th report had recommended that the scope of judicial intervention under Section 11 must be statutorily restricted to an examination as to the existence of the arbitration agreement alone.[2] This recommendation was duly incorporated by insertion of Section 11(6A), by way of the 2015 Amendment.

As has been discussed earlier the doctrine of kompetenz-kompetenz indicates that an arbitral tribunal is empowered and is competent to rule on its own jurisdiction, including determining all jurisdictional issues, and the existence or validity of an arbitration agreement. The very underlying object of this doctrine is to minimize judicial intervention in matters entrusted to the tribunal by the parties in a flexible alternative dispute mechanism such as arbitration. Therefore, Section 11(6A), while overcoming the effect of all preceding judgments to the contrary, effectively clarifies that a court shall restrict itself to the examination of existence of arbitration agreement alone, while deciding an application under Section 11 of the Act and not intervene or delve into the issue of jurisdiction, as such powers lie with the arbitral tribunal under the kompetenz-kompetenz principle. This amended provision, as well as the kompetenz-kompetenz principle were subsequently upheld in a subsequent case law of Duro Felguera S.A. v. Gangavaram Port Ltd[3].

Whenever there is an issue of jurisdiction and determination of competence thereof, the issue of limitation often crops up. The Supreme Court, way back in 1996, in the case of Pandurang Dhoni Chougule v. Maruti Hari Jadhav[4] clarified that “a plea of limitation is a plea of law which concerns the jurisdiction of the court which tries the proceedings, as a finding on these pleas in favour of the party raising them would oust the jurisdiction of the concerned court.” This proposition was subsequently upheld in the case of Indian Farmers Fertilizer Co-operative Ltd. v. Bhadra Products.[5]

Hence, in context of rejecting an application under Section 11 on the ground that the claim is barred by limitation came up before the Supreme Court recently in Uttarakhand Purv Sainik Kalyan Nigam Ltd. v. Northern Coal Field Ltd.[6] laid down the law. In view of the law set out in Section 11(6A) and Section 16 of the Act, and the legislative policy to restrict judicial intervention at the preference stage, the Supreme Court held that the issue of limitation would have to be left for determination by the arbitrator. The Supreme Court further clarified that “there are exceptions to the doctrine of kompetenz-kompetenz, when the arbitration agreement itself is impeached as being procured by fraud or deception. This exception would also apply to cases where the parties in the process of negotiation, may have entered into a draft agreement as an antecedent step prior to executing the final contract. The draft agreement would be a mere proposal to arbitrate, and not an unequivocal acceptance of the terms of the agreement.”

In the latest decision of the Delhi HC in March, 2020, in the case of Bina Modi and others V. Lalit Modi[7] the court in India rejected suit granting the anti-arbitration injunction and reaffirmed the doctrine of Kompetenz-Kompetenz. The doctrine has taken wide range of popularity in the area of Arbitration, the doctrine confirms power to the Arbitral Tribunal to determine its own jurisdiction, by setting the boundaries in regard to the interference of the Courts in the Arbitration process. The case further illuminated the doctrine of Kompetenz-Kompetenz wherein, Court made it clear that the principles governing anti injunction suits are not applicable on anti-arbitration injunction suits. Further, Court contended that Section 41(h) of Specific Relief Act, 1963 bars court from granting injunction in cases where alternate efficacious remedy is available and in the present case Section 16 of Arbitration Act, 1996 provides the efficacious remedy. In light of the above, the Hon'ble Delhi High Court rejected the suit granting anti-arbitration injunction and directed the parties to resolve the dispute before the Arbitral Tribunal, inclusive of the non-arbitrability disputes arising out of trust deed. The conclusion that can be drawn from the same is that the present decision of the Delhi HC has sought to clearly set out the boundaries as to the extent of the interference of the courts in the arbitration proceedings. Crucially it must be noted that the Court succeeded to uphold the Kompetenz-Kompetenz and cleared the scope of anti-arbitration injunction suit.

Conclusion: The underlying rationale of arbitral Kompetenz-Kompetenz is to avoid a situation where the arbitral tribunal can only proceed with its work once a court has declared it to have jurisdiction to do so. Thus, Kompetenz-Kompetenz is inevitably an important contributory factor to the efficiency of arbitral proceedings. It mitigates a very significant disadvantage of having courts deal with the merits of a dispute. With the growing application of arbitration as the go-to dispute settlement mechanism, it is important that such principles which uphold the hallmarks of the process be upheld.

[1] (2005) 8 SCC 618.

[2] Report No.246, Amendments to the Arbitration and Conciliation Act 1996, Law Commission of India, Government of India, August 2014, Para 33, Chapter-II, at 20.

[3] (2017) 9 SCC 729.

[4] AIR 1996 SC 153.

[5] AIR 2018 SC 627.

[6] SLP (C) No. 11476 of 2018.

[7] CS (OS). No. 84, 85 of 2020.

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