An arbitral tribunal has been bestowed with the power to rule on any objection raised by parties with respect to the existence or validity of an arbitration agreement, under Section 16 of the Arbitration and Conciliation Act, 1996 (Act).
In terms of Section 16(2) of the Act, a challenge to the jurisdiction or composition of an arbitral tribunal must be taken no later than the stage of submission of the statement of defence. Section 16(2) of the Act further clarifies that such a challenge can be take even though the party may have participated in the process of appointment of the arbitrator. However, if a party chooses to refrain from raising such an objection or challenge by this stage, there will be a deemed waiver of right to object under Section 4 of the Act.
It is along these lines that the Supreme Court of India (Supreme Court), in a recent decision titled as Quippo Construction Equipment Limited v. Janardan Nirman Pvt. Limited,1 has held that non-participation in arbitral proceedings and/or failure to raise objections at the relevant stage before the arbitrator will preclude a party from raising such objections after the arbitral award has been passed.
The appellant and respondent companies were involved in the business of infrastructure development activities. During the course of business, the appellant and the respondent entered into four agreements (Agreements), whereby construction equipment was provided by the appellant to the respondent on a rental basis.
The first agreement that was signed on 01 August 2008, provided that the disputes arising out of or in connection with the said agreement would be referred to arbitration under the rules and regulations of the Construction Industry Arbitration Association (CIAA). It was further stated that the courts at New Delhi shall have exclusive jurisdiction and that the venue for holding such arbitral proceedings would be New Delhi.
On the contrary, the fourth agreement dated 14 April 2011 conferred exclusive jurisdiction on courts at Calcutta and stated that the venue for holding arbitral proceedings arising thereunder, would be Calcutta.
Thereafter, disputes arose between the parties regarding non-payment of outstanding dues by the respondent, subsequent to which the appellant invoked the arbitration clause by issuance of a notice to that effect (Invocation Notice). By way of the Invocation Notice, the appellant informed the respondent about the nomination of Shri L.C. Jain, president, consumer forum (retired) as the sole arbitrator (Arbitrator) who would be conducting proceedings at New Delhi to adjudicate upon the disputes that had arisen between the parties.
In its reply to the Invocation Notice, the respondent denied existence of any agreement between the parties. Instead of participating in the arbitral proceedings that ensued, the respondent chose to prefer a civil suit2 before the Court of the Civil Judge, Second Court at Sealdah (Trial Court), praying that the Agreements be declared null and void and that a permanent injunction be granted in its favour, thereby restraining the appellant from relying on the arbitration clauses contained in the Agreements.
At the interim stage, a restraint order was passed by the Trial Court as a result of which the proceedings before the arbitrator were stayed. However, subsequent to an application filed by the appellant under Section 5 and Section 8 of the Act, the Trial Court passed an order, concluding that the dispute between the parties was within the scope of arbitration and therefore, allowing the application preferred by the appellant while directing that the plaint be returned3 .
The respondent sought numerous adjournments before the Arbitrator and even though the Arbitrator did grant some respite to the respondent on certain occasions, since no interim relief had been granted in the appeal, the proceedings before the arbitrator continued. By ex-parte award dated 24 March 2015, the Arbitrator accepted the claims preferred by the appellant (Award). The Award was a common award covering claims in respect of all the Agreements.
Subsequently, the respondent filed an application4 under Section 34 of the Act before the High Court of Calcutta (High Court), challenging the Award, which was dismissed on the ground that the said petition could not have been filed before the High Court. Thereafter, another application5 was preferred by the respondent under Section 34 of the Act in the Court of the District Judge, Alipore, to challenge the Award.
Thereafter, the petition filed by the respondent under Section 34 of the Act before the Court of the District Judge, Alipore was also dismissed by order dated 13 August 2018. While doing so, it was held that the courts at New Delhi will have the jurisdiction to entertain an application under Section 34 of the Act, as the award was passed in New Delhi. The respondent challenged this order before the High Court.6 The High Court, in its judgment dated 14 February 2019, allowed the appeal filed by respondent and the set aside the order dated 13 August 2018 (High Court Order). This High Court Order was then challenged by the appellant, before the Supreme Court.
FINDINGS OF THE SUPREME COURT
At the outset, the Supreme Court noted that even though each of the Agreements provided for arbitration, the award rendered by the Arbitrator was a common award. It was further noted that even though one of the agreements stated the venue was to be Calcutta, the proceedings were conducted at New Delhi. It was pointed out that the respondent did not raise objections in this regard at any stage, before the Arbitrator and let the arbitral proceedings culminate in an ex-parte award. Therefore, the question that arose was whether the respondent could have waived the right to raise any objections.
The Supreme Court held that it was possible for the respondent to advance submissions that the arbitration pertaining to each of the Agreements be considered and dealt with separately. It was also possible for the respondent to contend that in respect of the agreement where the venue was agreed to be at Calcutta, the arbitration proceedings be conducted accordingly. However, considering the fact that the respondent failed to participate in the proceedings before the Arbitrator and did not raise any objections to contest the Arbitrator's jurisdiction, or that he was exceeding his scope of authority, the Supreme Court came to the conclusion that the respondent must be deemed to have waived its right to make such objections. The Court held that the respondent is therefore precluded from raising any submissions or objections as to the venue of the arbitration at such a belated stage.
Reliance was placed on the decision in Narayan Prasad Lohia v. Nikunj Lohia and others,7 wherein the parties had agreed to two arbitrators and where an objection in that regard had not been taken before the arbitrators. A three judge-bench of the Supreme Court found the stipulation in Section 10 of the Act, that the number of arbitrators shall not be an even number, was a derogable provision and since no objections were raised to the composition of the arbitral tribunal, the respondents therein had waived their right to object.
The Supreme Court also distinguished the decision in Duro Felguera v. Gangavaram Port Limited,8 relied upon by the counsel for the respondent, where there were six arbitral agreements and each one of them was subject matter of independent reference to arbitration. It was held that case relied upon by the respondent was in relation to an international commercial arbitration, whereas the present arbitration was a domestic arbitration where CIAA was empowered to and did nominate the Arbitrator.
The Supreme Court observed that it was not as though there were completely different mechanisms for appointment of arbitrators in each of the agreements, and that the only distinction was that according to one of these Agreements, the venue was to be Calcutta. The Supreme Court also stated that the specification of place of arbitration may have special significance in an international commercial arbitration, where the place of arbitration may determine which curial law would apply. However, in the present case, the applicable substantive as well as curial law are the same. This factor therefore bears much lesser relevance, if at all, under these circumstances.
This decision of the Supreme Court will play an important role in ensuring that parties to arbitrations respect the principle of estoppel, in order to ensure smooth conduct of arbitrations. Once a party has missed or deliberately failed to optimise its opportunity to participate in the arbitral proceedings and bring forth its objections in relation to material issues such as jurisdiction, that party is estopped from conveniently raising such objections after suffering an adverse or unfavourable award. Allowing such a party to recover from this position, when it has failed to lay any foundation for the challenge through its submissions during the course of arbitration, would be inequitable, to say the least and cause undue prejudice and difficulty as against the other party which has meticulously strived to obtain a favourable award. We believe that this decision will go a long way in further fortifying arbitration as an alternative dispute resolution mechanism, by restoring faith of litigants in the rigidity of an arbitral award.
1 Civil Appeal No. 2378 of 2020 arising out of Special Leave Petition (C) No. 11011 of 2019
2 Suit number 189 of 2012
3 Miscellaneous application number 57 of 2014
4 A.P. No. 1141 of 2015
5 Miscellaneous case number 298 of 2015
6 CAN number 10094 of 2018
7 (2002) 3 SCC 572
8 (2017) 9 SCC 729
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