Rejection of Section 16 Jurisdiction Plea Cannot Be Challenged Under Section 34 Until Final Award

The parties entered into Memorandums of Understanding (MoU) in 2006 and 2008. After the appellant filed a recovery suit, the respondent successfully moved an application under Section 8 of the Arbitration and Conciliation Act, 1996, referring the matter to arbitration

During arbitral proceedings, the respondent filed an application under Section 16 of the Act, challenging the Arbitrator's jurisdiction on the grounds that the claims were barred by limitation. The Arbitrator rejected this plea on 19.05.2023

The respondent challenged this rejection under Section 34 before the District Judge, who dismissed it on merits. Subsequently, the Delhi High Court, in an appeal under Section 37, reversed the District Judge's order and allowed the respondent’s plea on merits

The appellant challenged this before the Supreme Court, contending that an order rejecting a Section 16 plea is not immediately challengeable

1. Whether an order passed by an arbitral tribunal under Section 16(2) of the Arbitration Act, 1996, rejecting a plea of lack of jurisdiction, can be challenged under Section 34 of the Act prior to the passing of the final arbitral award.

2. Whether the High Court erred in entertaining an appeal under Section 37 against a Section 34 order that originated from a rejection of a jurisdictional plea under Section 16.

The Court primarily applied Section 16 of the Arbitration and Conciliation Act, 1996, specifically Sections 16(5) and 16(6), which mandate that if a plea of lack of jurisdiction is rejected, the tribunal shall continue proceedings and the aggrieved party may challenge the order only after the final award is made via Section 34

The Court also referenced Section 37(2), noting that an appeal lies only when the arbitrator upholds a plea of lack of jurisdiction

Precedent in Indian Farmers Fertilizer Cooperative Limited v. Bhadra Products (2018), distinguishing between a "preliminary issue" resulting in an interim award and a "jurisdictional plea" under Section 16

If limitation is decided as a preliminary issue independently of a jurisdictional challenge, it may constitute an "interim award" challengeable under Section 34. However, when limitation is raised specifically as a plea of lack of jurisdiction under Section 16(2), the "drill" of Sections 16(5) and 16(6) must be followed

These sections explicitly state that upon rejection of such a plea, the arbitrator must proceed to a final award, and the jurisdictional challenge can only be raised thereafter

The Court found that both the District Judge and the High Court misinterpreted Bhadra Products, failing to realize that treating a Section 16 rejection as an interim award would render Section 37(2) superfluous and lead to the "piecemeal" litigation the Act seeks to avoid

The Court held that the respondent must wait until the final award is passed to challenge the validity of the order dated 19.05.2023. The appeal was allowed, directing that the arbitral proceedings should continue, with the right of the respondent to challenge the jurisdictional ruling preserved for the post-award stage under Section 34