Arbitrator’s Section 16 Decision Not Challengeable Under Writ Jurisdiction

Source: Supreme Court

Why in News? 

A Division Bench of the Supreme Court of India, comprising Justice J.K. Maheshwari and Justice Atul S. Chandurkar, in M/s Tarini Prasad Mohanty v. M/s Sunflag Iron and Steel Company Limited (2026), held that the writ jurisdiction of a High Court cannot be invoked to challenge an arbitral tribunal's order passed under Section 16 of the Arbitration and Conciliation Act, 1996 (A&C Act). The Court affirmed that any such challenge must be raised under Section 34 of the Act at the conclusion of the arbitral proceedings, as envisaged under Section 16(6).

What was the Background of M/s Tarini Prasad Mohanty v. M/s Sunflag Iron and Steel Company Limited (2026) Case? 

• An agreement for sale of iron ore was executed on February 12, 2004, between M/s Tarini Prasad Mohanty (mine owner) and M/s Sunflag Iron and Steel Company Limited (SISCO). Upon the arising of disputes, the matter was referred to a Sole Arbitrator. 
• During arbitration proceedings, the mine owner filed an application under Section 16 of the A&C Act on February 5, 2024, contending that the agreement and supplementary agreements were insufficiently stamped. 
• The mine owner argued that the contract was in the nature of a "conveyance" requiring stamping under Article 23 of Schedule I to the Indian Stamp Act, 1899, and not under Article 5(c) as claimed by SISCO. 
• The Arbitrator rejected the objection on May 30, 2024, holding that the agreement was "an agreement to sell" and not a "conveyance," and that it had been properly stamped. The arbitrator decided to continue the arbitration. 
• Aggrieved by this decision, the mine owner filed a Writ Petition before the Orissa High Court. The Single Judge interfered with the Arbitrator's decision, prompting SISCO to file an intra-court appeal before the Division Bench. 
• The Division Bench set aside the Single Judge's order, holding that it was impermissible to challenge the arbitrator's decision under Section 16 through writ jurisdiction, and that the appropriate remedy was to file an application under Section 34 at the conclusion of proceedings. 
• The mine owner then appealed to the Supreme Court.

What were the Court's Observations? 

• On the Impermissibility of Writ Jurisdiction under Section 16: The Court held that it was not open for a Single Judge, in exercise of writ jurisdiction, to enter into the merits of a dispute while adjudicating a challenge to an order passed under Section 16 of the A&C Act. The invocation of writ jurisdiction would only be permissible in cases involving a complete lack of inherent jurisdiction on the part of the arbitrator, which was not the case here. 
• On the Arbitrator's Competence to Decide Stamping Issues: Relying on the seven-judge Constitution Bench decision in In Re: Interplay, the Court affirmed that the issue of stamping of a document falls squarely within the ambit of the Arbitral Tribunal. The arbitrator's decision under Section 16 was therefore within jurisdiction, and the mere labelling of circumstances as "exceptional" could not justify the exercise of writ jurisdiction. 
• On the Proper Remedy: The Court held that even assuming the arbitrator's order under Section 16 was erroneous in law, the appropriate remedy available to the aggrieved party was to challenge the same under Section 34 of the A&C Act at the conclusion of arbitral proceedings, as expressly provided under Section 16(6). 
• On the Scope of Extraordinary Jurisdiction: The Court held that the interpretation of various agreements between the parties required a detailed exercise that ought not to have been undertaken in exercise of extraordinary jurisdiction. The Single Judge erred in going into the merits of the dispute regarding the nature of the agreements while exercising writ jurisdiction.

What is Section 16 of the Arbitration and Conciliation Act, 1996? 

Section 16 of the Arbitration and Conciliation Act, 1996 — Competence of Arbitral Tribunal to Rule on its Jurisdiction  

• Sub-section (1): The arbitral tribunal has the power to rule on its own jurisdiction, including objections regarding the existence or validity of the arbitration agreement. For this purpose:  
  • An arbitration clause forming part of a contract is treated as an agreement independent of the other terms of the contract. 
  • A decision by the tribunal that the contract is null and void does not automatically render the arbitration clause invalid. 
• Sub-section (2): A plea challenging the tribunal's jurisdiction must be raised no later than the submission of the statement of defence. Merely having appointed or participated in the appointment of an arbitrator does not preclude a party from raising such a plea. 
• Sub-section (3): A plea that the tribunal is exceeding the scope of its authority must be raised as soon as the matter allegedly beyond its authority arises during the proceedings. 
• Sub-section (4): The tribunal may admit a late plea under Sub-sections (2) or (3) if it considers the delay to be justified. 
• Sub-section (5): The tribunal shall decide on any such plea and, if the plea is rejected, shall continue with the arbitral proceedings and make an arbitral award. 
• Sub-section (6): A party aggrieved by such an arbitral award may seek its setting aside by making an application under Section 34.