Appeal U/S 37 Arbitration Act Will Not Lie Against Order Of Arbitrator Rejecting Plea Challenging His Jurisdiction: Patna HC

The Patna High Court observed that an appeal under Section 37 of the Arbitration and Conciliation Act will not lie against an order of Arbitrator dismissing a plea challenging his jurisdiction.

In that context, the Bench of Justice Partha Sarthy observed that, "while section 37 deals with appealable orders, section 37(2) of the Act provides that an appeal shall lie to a Court from an order of the Arbitral Tribunal accepting the plea referred to in section 16(2) ie that the Arbitral Tribunal does not have jurisdiction. However, if the said plea under section 16(2) is rejected, appeal would not lie under section 37. The only option available to the party affected will be to wait for the award and then to challenge the same under section 34."

Senior Counsel Pushkar Narain Shahi appeared for the petitioners, while Senior Counsel YV Giri appeared for the respondents.

In this case, the appeal was filed under Section 37(1)(c) of the Arbitration and Conciliation Act, 1996, seeking to set aside the judgment passed by the Additional District Judge which had dismissed the petition under Section 34 of the Act filed by the appellants.

The Multi-State Cooperative Land Development Bank prayed that the State of Bihar release a sum of Rs. 570.79 crores, acknowledged by the Bank as dues under various heads along with accrued interest. The Bank contended that it had provided loans for agricultural purposes at the behest of the State of Bihar, relying on the state's assurance to compensate any losses incurred by the Bank.

The Court directed the petitioner Bank to take steps to appoint an arbitrator under Section 11 of the Act to resolve the disputes. Subsequently, the arbitrator issued notices to respondents, objections were filed, and a preliminary objection regarding jurisdiction was raised. The arbitrator rejected the objection on 24.5.2015, and the proceedings continued, resulting in an award on 6.1.2016, directing the State of Bihar to pay Rs. 493.7 crores.

The appellants challenged the award, and the same was dismissed by the learned Additional District Judge, which led to them approaching the High Court.

Subsequently, the High Court observed that, "the appellant State of Bihar, not having challenged the order dated 24.5.2015 rejecting its plea of the Arbitral Tribunal not having jurisdiction is of little consequence. The learned Arbitral Tribunal proceeded with the arbitration and passed the award dated 6.1.2016 which was challenged by the appellant State of Bihar by filing an application under section 34 of the Act. Thus, the appellant can argue the question of the Arbitral Tribunal not having jurisdiction in its challenge to the award itself."

The High Court concluded that the arbitral tribunal lacked jurisdiction and erred in proceeding with and making an arbitral award. In light of the same, the appeal was allowed.

Cause Title: The State of Bihar & Ors. vs The Bihar Rajya Bhumi Vikas Bank Samiti

Click here to read/download the Judgment