Scope of Section 4 of the Act– Waiver of Right to Object
In Quippo Construction Equipment Limited v. Janardan Nirman Pvt. Ltd. |CIVIL APPEAL NO. 2378 OF 2020
The Respondent, a business of infrastructure development activities approached the Claimant who is engaged in a business of providing equipment for infrastructure activities. The Claimant gave certain equipment on rent to the Respondent in lieu of which an Agreement dated 01.08.2010 was entered into between the parties.
After being satisfied by the Claimant’s equipment, the Respondent further rented another equipment for its work site under an Agreement dated 02.10.2010.
Further, two more Agreements dated 19.03.2011 and 14.04.2011 were entered to rent equipments and carry out the work according to the instructions of the Respondent at its work site.
It is important to note the relevant clauses of the First Agreement dated 01.08.2010:
24. Governing Law Jurisdiction & Arbitration: The parties hereto agree that the courts and tribunals at New Delhi shall have the exclusive jurisdiction and shall be governed in accordance with the law in India.
24.1 Arbitration: In the event of any claim, dispute or difference arising out of or in connection with the interpretation or implementation of the agreement or out of or in connection with any breach, or alleged breach of the Agreement (hereinafter referred to as “the dispute”) between the parties, the parties hereby agreed to refer such dispute to Arbitration under Construction Industry Arbitration Association (CIAA) Rules and Regulations save and except that on behalf of both the parties to the Agreement. The owners shall be entitled to select the sole Arbitrator out of the panel of CIAA. The proceedings shall be governed by the Arbitration and Conciliation Act, 1996 with any statutory modification thereto or re-enactment thereof. The venue for holding such arbitration proceedings would be New Delhi.”
However, in the Last Agreement dated 14.04.2011 contained the following arbitration clause:
24. Governing Law Jurisdiction & Arbitration: All and any dispute arising out of or in connection with this contract, including any question regarding its existence, validity or termination, shall be referred to and finally resolved by arbitration in Kolkata in accordance with the arbitration Rules of the Construction Industry Arbitration Council (“CIAC Arbitration Rules”) for the time being in force at the commencement of the arbitration, which rules are deemed to be incorporated by reference in this Clause. The owner shall be entitled to select the sole Arbitrator out of the panel of CIAC. This agreement is governed by the laws of India and the parties hereto agree that only that courts and tribunals at Kolkata shall have the exclusive jurisdiction the dispute arise out of the terms of the Agreement or its interpretation.
The language of the arbitration shall be in English language. The provision shall survive the termination/expiry of this agreement.”
As per the payment terms under the Agreement, the Respondent was liable to pay the Appellant within 7 days from the date of submission of monthly bills failing which the Respondent shall also incur payment of interest for the delayed period.
After non-payment of dues, the Appellant sent a Notice for Invoking Arbitration on 02.03.2012 because of no response from the Respondent to the several reminders. The Appellant also relying on Clause 24 and 24.1 of the First Agreement appointed Shri L.C. Jain, President Consumer Forum (Retd.) was appointed as the Sole Arbitrator to conduct proceedings at New Delhi.
The Respondent denied existence of any agreement between the parties and did not participate in the arbitration proceedings. The Respondent on the contrary, filed a suit praying to declare the agreements null and void and a permanent injunction restraining the Appellant to rely upon the arbitration agreement. The Trail Court passed an interim order restraining the arbitration.
The Appellant filed an application under Section 5 and 8 of the Arbitration & Conciliation Act, 1996 (“the Act”) to refer the parties to arbitration. The Court therefore, referred the parties to arbitration. The Respondent filed an appeal against such order however, the proceedings under arbitration continued.
The Arbitrator passed an ex-parte award on 24.03.2015 accepting the claims of the Appellant. It is not disputed that all the four agreements provided for an arbitration clause but the arbitrator provided for one common award and one of the agreements mentioned the venue to be Kolkata but the proceedings were conducted in New Delhi. However, the Respondent did not raise these objections at any stage of the arbitration proceedings.
The Appellant thereafter, filed an Application under Section 9 of the Act before the Delhi High Court after the award. The same was rejected as no prima facie case was made out by the Appellant.
The Respondent aggrieved by the award, challenged the same under Section 34 of the Act before the Delhi High Court which was dismissed on the ground of lack of jurisdiction of the High Court after which the Respondent approached the District Court, Alipore.
However, after rejection of the petition on 13.08.2018 by the District Court, Alipore stating that only the New Delhi Courts have jurisdiction, the High Court of Calcutta also rejected the petitions filed by the Respondent under appeal and revision.
Therefore, the Respondent challenged the order of the revision petition on the ground that the remedy under Section 37 of the Act was available. The Respondent filed an appropriate petition before the High Court of Calcutta wherein the following judgment was passed on 14.02.2019:
“Accordingly, since it is evident from the cause title itself that the respondent herein was otherwise amenable to the jurisdiction of the Alipore court, the order impugned dated August 13, 2018 is set aside and Misc. Case No.298 of 2015 (R.No.385 of 2015) is restored to the board of the Additional District Judge, 16th Court at Alipore.”
The said judgment wherein the Calcutta High Court set aside the order of the District Court, Alipore and also the ex-parte award was challenged under Article 136 of the Constitution before the Supreme Court.
Issue Before the Supreme Court
The following issue were considered by the Supreme Court:
Whether the Respondent could be said to have waived the right to raise any of the objections mentioned above?
The Appellant submitted that the Civil Court allowed the applications under Section 5 and 8 of the Act and allowed arbitration to the parties and it was the Respondent who chose not to participate in the arbitration proceedings.
The Respondent raised the objection of venue only at the stage of an application under Section 34 of the Act therefore, the Respondent waived the right of such objection.
On the other hand, the Respondent submitted that every arbitration agreement should be considered independently and if an agreement specified the venue to be Kolkata, the same should have be adhered to by the parties.
The Respondent further, relied on the judgment of Duro Felguera, S.A. v. Gangavaram Port Limited (2017) 9 SCC 729, wherein six arbitration agreements were considered separately.
The Court referred to the Section 4, 16 and 20 of the Act and also precedents to see the amplitude and applicability of Section 4 of the Act under Narayan Prasad Lohia v. Nikunj Kumar Lohia and Ors. (2002) 3 SCC 572 wherein the Court stated that:
Thus, even stipulation in Section 10 that number of Arbitrators “shall not be an even number” was found to be a derogable provision and since no objections were raised to the composition of the Arbitral Tribunal, as provided in Section 16, the concerned respondents were deemed to have waived their right to object.”
Further, the Court observed that:
22. In the present case the arbitration in question is a domestic and an institutional arbitration where CIAA was empowered to and did nominate the Arbitrator. It is not as if there were completely different mechanisms for appointment of Arbitrator in each of the agreements. The only distinction is that according to one of the agreements the venue was to be at Kolkata. 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 would be the same.”
The Court concluded that it was possible for the Respondent to consider and raise the objections with regard to the venue of the arbitration and separate agreements during the arbitration proceedings but the since the Respondent failed to make any such submission with respect to the jurisdiction of the Arbitrator or the Arbitrator exceeding its scope of authority, the Respondent must be deemed to have waived all his objections.
Therefore, the Court concluded that:
24. In the circumstances, the respondent is now precluded from raising any submission or objection as to the venue of arbitration, the conclusion drawn by the Court at Alipore while dismissing Miscellaneous Case No.298 of 2015 was quite correct and did not call for any interference. The High Court, in our view, was in error in setting aside said Order. In any case, the fact that the cause title showed that the present appellant was otherwise amenable to the jurisdiction of the Alipore Court, could not be the decisive or determining criteria.”
The Court upheld the order passed by the District Court, Alipore and set aside the order of the High Court of Calcutta.
The Court has discussed and analysed the relevant Sections of the Act, most importantly Section 4 of the Act in order to assess the waiver of right of objection. The Court while not going into the merits of the case, discussed by the Arbitral Tribunal, has adjudicated upon only when can a party invoke and question the right of objection. The Court also unenthused the non-participation of parties in the arbitration proceedings.
While referring to the judgment of Narayan Prasad Lohia v. Nikunj Kumar Lohia and others (2002) 3 SCC 572, the Court observed the following paragraphs of the decisions:
16. It has been held by a Constitution Bench of this Court, in the case of Konkan Rly. Corpn. Ltd. v. Rani Construction (P) Ltd.4 that Section 16 enables the Arbitral Tribunal to rule on its own jurisdiction. It has been held that under Section 16 the Arbitral Tribunal can rule on any objection with respect to existence or validity of the arbitration agreement. It is held that the Arbitral Tribunal’s authority under Section 16, is not confined to the width of its jurisdiction but goes also to the root of its jurisdiction. Not only this decision is binding on this Court, but we are in respectful agreement with the same. Thus it is no longer open to contend that, under Section 16, a party cannot challenge the composition of the Arbitral Tribunal before the Arbitral Tribunal itself. Such a challenge must be taken, under Section 16(2), not later than the submission of the statement of defence. Section 16(2) makes it clear that such a challenge can be taken even though the party may have participated in the appointment of the arbitrator and/or may have himself appointed the arbitrator. Needless to state a party would be free, if it so chooses, not to raise such a challenge. Thus a conjoint reading of Sections 10 and 16 shows that an objection to the composition of the Arbitral Tribunal is a matter which is derogable. It is derogable because a party is free not to object within the time prescribed in Section 16(2). If a party chooses not to so object there will be a deemed waiver under Section 4. Thus, we are unable to accept the submission that Section 10 is a non-derogable provision. In our view Section 10 has to be read along with Section 16 and is, therefore, a derogable provision.
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20.Respondents 1 and 2 not having raised any objection to the composition of the Arbitral Tribunal, as provided in Section 16, they must be deemed to have waived their right to object.”