Rejection Of Section 16 Objection By Arbitrator Cannot Be Challenged Under Article 226/227; Aggrieved Party Must Wait For Final Award: Supreme Court

"Parliament has completely ousted the jurisdiction of Courts to interfere during the arbitral proceedings - courts can intervene only after the tribunal has made an award. Thus, Section 16 is intended to give full effect to the procedural and substantive aspects of the doctrine of competence-competence," Supreme Court, in a significant ruling dated May 27, 2026, held that a challenge to an order passed by an Arbitrator under Section 16 of the Arbitration and Conciliation Act, 1996, rejecting an objection regarding the insufficient stamping of an agreement, cannot be entertained in writ jurisdiction.

A bench comprising Justices J. K. Maheshwari and Atul S. Chandurkar observed that the statutory scheme of the Arbitration Act mandates that an aggrieved party must wait until the final award is passed to challenge such interlocutory orders under Section 34.

The dispute arose from an agreement for the sale of iron ore executed in 2004 between a mine owner (appellant) and M/s Sunflag Iron and Steel Company Limited (respondent). During arbitration, the mine owner filed an application under Section 16 of the Arbitration Act, contending that the agreements were insufficiently stamped "conveyances" and should be impounded. The Arbitrator rejected the objection, holding the document was an "agreement to sell." The mine owner challenged this via a writ petition under Articles 226 and 227, which was allowed by a Single Judge of the High Court but subsequently set aside by a Division Bench.

The primary question before the court was whether a challenge to an order passed under Section 16 of the Arbitration Act, rejecting a jurisdictional or stamping objection, ought to be entertained by a High Court in the exercise of writ jurisdiction. The Court also examined whether a writ appeal was maintainable before a Division Bench when a Single Judge had exercised jurisdiction under both Articles 226 and 227.

Maintainability Of Writ Appeal When Both Articles 226 And 227 Are Invoked

The Court first addressed the appellant's contention that the Division Bench should not have entertained the writ appeal because the Single Judge had purportedly exercised supervisory jurisdiction under Article 227. Rejecting this, the bench noted that where a petition is filed under both Articles 226 and 227 and the facts justify the invocation of either, the court should treat the application as one under Article 226 to preserve the party's right to appeal.

The bench reiterated that the maintainability of a Letters Patent Appeal depends on the pleadings, the nature of the order, and the directions issued. Since the mine owner had invoked the extraordinary jurisdiction of the High Court and obtained substantive reliefs, including directions to the Collector for impounding, the Division Bench was justified in entertaining the writ appeal.

"In fairness, the mine owner ought not now contend that the writ petition preferred by him was only under Article 227 of the Constitution so as to question the maintainability of the writ appeal."

Minimal Judicial Intervention Is The Rule Under Arbitration Act

Moving to the core issue of interference with the Arbitrator’s order, the Court emphasized the "non-obstante" clause in Section 5 of the Arbitration Act. It observed that the threshold for exercising discretion under Articles 226 and 227 in arbitration matters is significantly higher due to the legislative intent of minimal judicial interference.

The Court noted that once arbitration has commenced, parties must generally wait until the award is pronounced to seek judicial review of "in-between orders." This ensures the efficiency of the arbitral process and prevents the interdiction of proceedings through frequent court interventions.

Rejection Of Section 16 Objection Not Open To Interim Challenge

The Court highlighted that Section 16(5) and 16(6) of the Act provide a clear roadmap: if the Arbitrator rejects a jurisdictional challenge, the tribunal continues the proceedings and makes an award. The aggrieved party’s remedy is then restricted to filing an application for setting aside the final award under Section 34.

Citing the Constitution Bench in Re: Interplay Between Arbitration Agreements and the Stamp Act, the Court held that any objection regarding stamping falls within the ambit of the Arbitral Tribunal. An error in deciding such an objection does not constitute a "patent lack of inherent jurisdiction" that would justify a foray into the writ court.

"Assuming that the learned Arbitrator erred in his conclusion that the agreement between the parties was ‘an agreement to sell’, that would not make the case ‘exceptional’ for being set aside in exercise of writ jurisdiction."

Writ Court Should Not Interpret Contracts During Pending Arbitration

The Supreme Court found that the Single Judge erred by embarking on a detailed perusal of the "true intention" of the parties and the nature of the agreements. The bench observed that such contractual interpretation is a matter of evidence and merits, which the Arbitrator was still seized of.

The Court held that it was impermissible for a writ court to enter into the merits of the dispute while adjudicating a challenge to a Section 16 order. Such an exercise, performed before the parties had even led evidence, resulted in prejudice and exceeded the limited scope of extraordinary jurisdiction.

"The remedy of having the Tribunal satisfy itself on the question of stamping under Section 16, with the award remaining open to challenge under Section 34 at a later stage, is not inadequate."

The Supreme Court concluded that the Division Bench was correct in setting aside the Single Judge's order. It clarified that the issue regarding the correct stamping of the agreement remains open and can be raised by the aggrieved party under Section 34 of the Arbitration Act after the final award is passed. Consequently, the Civil Appeal was dismissed.

Date of Decision: May 27, 2026