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The Doctrine of Competence-Competence: Absolute or Not?

Paper Details 

Paper Code: AIJACLAV3RP162023

Category: Research Paper

Date of Submission for First Review: March 9, 2023

Date of Publication: December 29, 2023

Citation:  Riya Jhaveri & Neharika Sanghvi, “The Doctrine of Competence-Competence: Absolute or Not?", 3, AIJACLA, 135, 135-140 (2023), <https://www.aequivic.in/post/the-doctrine-of-competence-competence-absolute-or-not>

Author Details: Riya Jhaveri, 3rd Year Student, Pravin Gandhi College of Law &

Neharika Sanghvi, 4th Year Student, Kirit P. Mehta College of Law





Abstract

The fundamental tenet of arbitration is that a tribunal cannot resolve a dispute that is outside of its jurisdiction. The tribunal's power to review and rule on cases within its own jurisdiction is a key component of its jurisdiction. The notion of "competence-competence" in Indian courts regulates undue intervention in cases that are pertinent to the jurisdiction of an arbitral tribunal. This study examines the salient aspects of Indian law concerning the jurisdiction of an arbitral tribunal. This paper's first section examines the status and application of the competence-competence doctrine in Indian law, with a focus on how Indian law has evolved with regard to the separation of the respective jurisdictions of Indian courts and arbitral tribunals in cases involving arbitral jurisdiction. The view that Indian courts have taken on the doctrine's absolute nature is examined in the second section of the article. Whether the concept is appropriate for the Indian judiciary is the final question.

Keywords

Arbitration; Arbitration Tribunals; Competence-competence; Indian Judiciary


Introduction

“Jurisdiction means the extent of power of the court/tribunals to entertain suits and applications; it signifies the power, authority and competency of the court to adjudicate disputes presented before it. It refers to the right of administering justice by means of law.”[1] The ability or capacity of an arbitral tribunal to decide on a specific case is referred to as its jurisdiction. A tribunal for arbitration cannot decide a case that is outside of its purview. The concept of "jurisdiction" is still not defined under the act, but the supreme court has said it includes issues relating to an arbitration agreement's existence, legality, and scope.[2]

“The Competence-Competence concept states that an arbitral tribunal has the authority to hear and decide any disputes relating to its own jurisdiction, subject to future possible judicial review.”[3] Prof. Stavros Brekoulakis stated that “the aim to introduce the doctrine was to make arbitral tribunals more powerful rather than curtailing the powers of national courts.”[4] This wasn't always the position of India regarding the powers given to the arbitral tribunal to determine the extent and existence of its jurisdiction.

The position under the Arbitration Act, 1940 was quite different. Section 33 of the 1940 Act allowed only the courts to perform this function. The Arbitral Tribunal could not be viewed as having the authority to determine its own jurisdiction; it was not feasible for the Arbitral Tribunal to hear a case that could have impacted its own existence and authority.[5] This position changed after a few decades, the 1996 Act was enforced which was a comprehensive piece of legislation modeled on the lines of the Model Law[6]. The Arbitration (Protocol and Convention) Act of 1937, the Foreign Awards (Recognition and Enforcement) Act of 1961, and the Arbitration Act of 1940 were all repealed by this Act. Its principal objective was to advertise arbitration as a rapid and affordable means of resolving business conflicts. Both domestic and foreign business arbitration are covered under the 1996 Act.[7]

Section 16 of the 1996 Act discusses Competence-Competence in detail. Through Section 16, the legislature expressed its firm conviction and confidence in the Arbitral Tribunal's ability to uphold the law, even though its decisions might have an impact on its continued existence.

The objective of the paper is to analyse the Indian interpretation of the rule of competence-competence and whether it can be considered as an absolute doctrine under the Indian jurisprudence. In this paper we are trying to prove the nature of the doctrine in the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the 1996 Act’) with the help of a trail of cases.


Interpretation  

The initial and historical German concept of Kompetenz-Kompetenz[8] dealt with the seemingly uncontroversial notion that the parties could agree to refer a jurisdictional question to arbitration. Insofar as the Kompetenz-Kompetenz agreement could not be challenged, this obviously erased any doubts regarding the arbitrator's authority (at least jurisdictionally). If at all, the arbitral decision on the matter could be challenged, it could only be done so by focusing on the decision's merits rather than the arbitrator's authority.[9] “The problem is that competence-competence has been used to justify court decisions not to review fully the merits of a challenge to the arbitrator’s jurisdiction at least where the court and seat of arbitration are in the same place and to support other limits as to both the scope and the timing of any judicial review of the arbitrator’s authority.”[10]

The Competence-Competence doctrine is included in Section 16 of the 1996 Act[11]. The significance of Section 16 in the design of the 1996 Act is of the utmost importance, as it indicates confidence in the authority of the Arbitral Tribunal. Renusagar Power Co Ltd v. General Electric Co.[12] The court explicitly expressed its ruling, quoting an arbitral tribunal with its own authority, which will be deemed provisional or tentative until the Court makes a final decision on that issue. This case helped India define and recognise the idea of competence-competence. The purpose of section 16 is to expedite processes by permitting the tribunal to address jurisdictional matters, which are normally considered preliminary issues. The concepts contained in Section 16 are fundamental and must be borne in mind when interpreting any of the provisions of the 1996 Act.

Arbitrators are given the authority to choose their own jurisdiction under Section 16, and this authority includes the authority to address any challenges to the existence or legality of the arbitration agreement. The 1940 Act did not expressly grant the arbitrators this authority.  Section 16 of the 1996 Act and the Model Law's Article 16 are equivalent. Each nation that has ratified the Model Law has granted this authority to the arbitrators.

However, in two circumstances, an Indian court may decide on the tribunal's authority and competence:

●        The court will evaluate the arbitration agreement's legality and not immediately send the case to arbitration, in cases where the party challenges the court's jurisdiction to hear a case because there is an arbitration agreement in place; and

●        Before appointing an arbitrator in a case where one is requested, the court may review the existence and legality of the arbitration agreement.[13]

The Supreme Court in the recent N.N. Global Mercantile Pvt. Ltd. V. M/S Indo Unique Flame Ltd.[14] ruled that the doctrine of kompetenz-kompetenz implies that the arbitral tribunal has the competence to determine and rule on its own jurisdiction, including objections with respect to the existence, validity, and scope of the arbitration agreement, in the first instance. The same can be subjected to judicial scrutiny by the courts at a later stage of the proceedings, if required.[15] 

“The doctrine is based on the premise that the arbitration agreement is separate and independent from the substantive underlying contract in which it is embedded. Equally, an arbitration agreement exists and can be acted upon irrespective of whether the main substantive contract is valid or not.”[16]

Competence and separability are two notions that are complementary but conceptually separate.[17] The supreme court has clarified that “(i) the purpose of the separability doctrine is to ensure that the intention of the parties to resolve the disputes by arbitration does not evaporate into thin air with every challenge to the legality, validity, finality or breach of the underlying contract.[18] (ii) In accordance with the notion of Competence-Competence described in subsection 16(1), the arbitral tribunal has the ability to assess and decide such jurisdictional challenges.[19] 

In the case of Olympus Infrastructures Pvt. Ltd. v. Meena Vijay Khetan[20] According to section 16(1), the arbitral tribunal is authorized to rule on matters pertaining to its jurisdiction as well as the validity of the arbitration agreement; the tribunal has the authority to rule on the validity of the agreement even if the contract containing the arbitration clause is declared void. Therefore, it may be claimed that the 1996 Act incorporates both the Separability and Competency-Competence principles.

However, in Chloro Controls Pvt. Ltd v. Severn Trent Water Purification[21] the Supreme Court stated that,

the judges made remarks regarding the negative effect of the doctrine as the doctrine makes the sole arbitrator judge in the case and rules out the court from their jurisdiction. The idea should be to make the arbitrators first judge to decide the issue at hand and not to deprive the courts of their jurisdiction. The court should have the power to review the awards made.[22]

This demonstrates the unambiguous position that India has adopted and the fact that the doctrine's interpretation is still unclear, raising the question of whether or not it can be regarded as an absolute doctrine.


Stance of the Doctrine of Competence -Competence in India

The Arbitration and Conciliation Act of 1996, which is substantially (with minor amendments) based on the UNCITRAL Model Law[23] on International Commercial Arbitration of 1985, gives formal acknowledgment to this essential premise of arbitration, a reflection of its consensual nature (Model Law). Even though Article 16 of the UNCITRAL Model Law served as the foundation for the interpretation of the Indian approach of the Competence-Competence theory, there are a few modifications.[24] 

In Bharat Aluminium Company v. Kaiser Aluminium Technical Inc.,[25]  which was decided in 2012, the Indian Supreme Court took into account the arbitral tribunal's complete discretion when determining its jurisdiction in order to promote a pro-arbitration approach.

Section 5 of the Arbitration and Conciliation Act[26] intends to limit judicial intervention. As per the same, no judicial authority can intervene in the process of arbitration unless specified in the Act, thus upholding the principle of Kompetenz- Kompetenz.” But, as always, this principle too, is not absolute.

Section 5 of the 1996 Act makes it clear that no judicial authority which would include courts can intervene except where so provided in part I of the Act. Therefore, unless there is a remedy provided under the act it would be impossible to accept the plea that the court can exercise suo motu powers which would mean inherent powers. Once the act expressly excludes judicial intervention it will be impossible to exercise the powers under section 151 of the code of civil procedure[27]. [28]

This sanction seems to have been introduced by the legislature because part I of the Act primarily vests authority with the parties to mutually agree on various matters. It is only when the parties fail to mutually agree on any matter that the arbitral tribunal steps in to take decisions. The section clearly recognises the policy of the party autonomy underlying the intention of the legislature. The legislature aimed to define and limit the court's role in arbitrations in order to give effect to the party autonomy policy, which is the obvious intent of the legislation.[29]

Statutory tribunals that operate under the 1996 Act have the authority to consider disputes of jurisdiction. Ruma Pal J of the Supreme Court noted a Supreme Court mention to the point that the authority of the arbitral tribunal under the clause extends to the very heart of its jurisdiction and is not confined to the scope of its jurisdiction.[30]

In 2009 the Supreme Court offered additional clarification in National Insurance Co. v. Boghara Polyfab, on the scope of the chief justice's jurisdiction under Section 11 as previously interpreted in Patel Engineering confirming that when choosing an arbitrator, the chief justice has broad ability to look into any jurisdictional issues, but the court made clear that the arbitral tribunal alone has the right to decide whether a claim qualifies for arbitration under the terms of the agreement.[31] In 2005 Patel Engineerings case[32] The Supreme court held that (i) When considering a request to appoint an arbitrator, the chief justice may decide whether the arbitration agreement is valid; in such case, (ii) the chief justice's decision would be final and would bar the arbitral tribunal from determining its jurisdiction under section.

The 2019 amendment to the legislation effectively put an end to judicial interference during the selection of arbitrators. The altered section 11 empowered the High Courts and the Supreme Court and gave them the authority to choose arbitral institutions to fulfill their responsibilities of selecting arbitrators. 

“Object of the act is to see that the proceedings come to a finality without the intervention of the court unless intervention by the court is warranted in a given case and the same is warranted by the law. It would serve no purpose and rather be a wasteful expense of time and resource if the arbitral proceedings which ought to be interdicted are allowed to continue and culminate into an award which would not stand scrutiny in the eye of law.”[33] 


Conclusion

The arbitration act after the 1996 amendment found a new meaning and was given a proper structure with the aim to make India an arbitration friendly nation, and with a rise in the number of international disputes India did feel a need to align its laws with those followed internationally. Even after the implementation of the 1996 amendment there were still instances visible showing excessive judicial intervention. The 2015 amendment gave India the extra push it needed to limit court intrusion in recognition of the pervasive delays related to litigation within this country. The modification to the Act is undoubtedly the best step towards making arbitration an effective, rapid and cost-friendly remedy.

The doctrine, though absolute in its nature, has not been implemented by the courts over the years. The courts believed that each case needs to be scrutinized in its own way in order for the court to decide if the doctrine is applicable in each and every case. Despite the intervention by the Courts, after the 2015 amendment the doctrine has achieved more importance. The doctrine aims to resolve the matters as soon as possible and work in the betterment of public policy. This doctrine envisages to reduce the burden on the courts and help the public resolve disputes as soon as possible. In India the doctrine has been evolving over the years and has no concrete stance. However, in countries such as the USA, Switzerland, France, Hong Kong, such power of the arbitrators is accepted and is absolute.

The principle of competence-competence is a very forward-looking doctrine. Despite 35 arbitral institutions set up to deal in matters relating to arbitration. These arbitral institutions have been unrecognized by the public at large. These institutions can help minimize the unnecessary intervention by the courts and make arbitration a speedy and a hassle-free process. The statute additionally specified that local courts may only intervene in an arbitration proceeding when the arbitral institution has granted authorization for them to do so; otherwise, courts are not permitted to do so. strengthening the principle's absoluteness in the process.

Considering the current state of COVID and the subsequent lockdown the process of dispute resolution has taken a toll and led to slower disposal of cases by the judicial bodies. It has become impossible for the courts to look into the abundant pending matters. With the absolute implementation of the competence-competence principle this problem could be resolved. It will not only help in empowering the arbitral tribunals but also reducing the burden of courts of interfering in jurisdiction matters of the tribunal.

In conclusion, even though the interference of the court is inevitable but with the absolute nature of this doctrine it could be minimized. The court is prohibited from intervening in the arbitral procedure to determine problems about the arbitral tribunal's jurisdiction.

 


[1] Sir Dinshaw Fardunji Mulla, The key to Indian practice, Summary of CPC, (12th edition, LexisNexis 2019) 7-8.

[2] Fali. S. Nariman, Arbitration in India ( 2021).

[3] Mrs Saadia Bhatty, Competence-Competence (Jusmundi, 27 sep 2022) <Competence-Competence (jusmundi.com> accessed on 5 December 2022.

[4] Bhumi Agarwal, Kompetenze-Kompetenze explained (Lawcolloquy, 5 October 2020) <https://lawcolloquy.com/view_post.php?data=73> accessed on 6 December 2022.

[5]Arbitration Act, 1940, s 33.

[6] UNCITRAL Model Law- “In Statement of Objects and Reasons of the 1996 Act, Congress indicated that although the Model Law mainly deals with international commercial arbitration”, it “could, with appropriate modifications, serve as a model for legislation on domestic arbitration and conciliation,” and that the 1996 Act seeks to consolidate arbitration law “taking into account the said UNCITRAL Model Law and Rules.”

[7] Bikalp Agrawal, Doctrine of Competence-Competence : An Indian and Chinese Perspective, (Academia ) <Doctrine of Competence-Competence : An Indian and Chinese Perspective | bikalp agrawal - Academia.edu> accessed on 6 December 2022, 39.

[8] Kompetenz- Kompetenz-German word for the Competence-Competence doctrine.

[9] Adam Samuel, Competence-Competence, (Academia, 2014) <(99+) Competence-competence | Adam Samuel - Academia.edu >accessed on: 7 December 2022, 67.

[10] Ibid 9, at 67

[11] Arbitration and Conciliation Act, 1996, s 16.

[12] Renusagar Power Co Ltd. v. General Electric Co. (AIR 1985 SC1156).

[13]  Sindu Sivakumar, Aditya Singh, Dipen Sabharwal, Arbitration in India, (Lexalogy) <https://www.lexology.com/library/detail.aspx?g=72bcbbe3-c139-46f2-b9 ce-086394161f41> accessed on: 7 December 2022

[14] N.N. Global Mercantile Pvt. Ltd. V. M/S Indo Unique Flame Ltd  (AIR 2021 SC 14).

[15] Ibid, Para 3.4.

[16] Ibid, Para 3.11.

[17] Supra note 2. 

[18] Enercon (India) lTD V. Enercon Gmbh (AIR 2014 SC 1)

[19] Swiss Timing Ltd v. Commonwealth Games 2010 Organizing Committee (AIR 2014 SC 677).

[20] Olympus Infrastructures Pvt. Ltd. v. Meena Vijay Khetan (AIR 1999 SC 2102).

[21] Chloro Controls(I) P.Ltd vs Severn Trent Water Purification (2013 (1) ABR 563).

[22] Ibid, Para 129, 

[23] UNCITRAL Model Law, Art. 16- Competence of arbitral tribunal to rule on its own jurisdiction

[24] Supra Note 2, 5.1.

[25]  Bharat Aluminium Company v. Kaiser Aluminium Technical Inc( AIR 2020 SC 552); see also, Mukesh Kumar Malav, Jurisdictional Issues in International Arbitration with Special Reference to India, Bharti Law Review, Bharati Law Review.

[26] Arbitration and Conciliation, Act,1996,  s 5.

[27] Section 151 of the code of civil procedure- “Nothing in this Code shall be deemed to limit or otherwise affect the inherent power of the Court to make such Orders as may be necessary for the ends of justice or to prevent abuse of the process of the Court.”

[28] Anuptech equipments Ltd. v Ganpati Co-op group housing society (AIR 1999 Bom 219), Para 9 and Para 14.

[29] Dr P. C. Markanda, Law relating to arbitration and conciliation, (8th edition, 2013).

[30] Avtar Singh, Arbitration & Conciliation and Alternative Dispute Resolution Systems, (12th edition, 2022).

[31] Ibid, para 22.3.

[32] S.B.P and Co. v. Patel Engineering Ltd. ( AIR 2005 SC 618), para. 19.

[33] Alcove industries ltd. v oriental structural engineers ltd. (AIR 2008 DE 393), Para 30.


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