Supreme Court : Waiver of right to object jurisdiction of arbitral tribunal after an award has been passed, upon failure to raise such objection during arbitration proceedings June 26, 2020
Published in: Between The Lines
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The Supreme Court of India (“SC”) by its judgement in the matter of Quippo Construction Equipment Limited v. Janardan Nirman Private Limited (decided on April 29, 2020) set aside the judgement dated February 14, 2019 passed by the Calcutta High Court (“CHC”). The SC held that a party was deemed to have waived its right to object the jurisdiction of the arbitral tribunal at a later stage.
Janardan Nirman Private Limited (“Respondent Company”) was engaged in the business of infrastructure development activities and had approached Quippo Construction Equipment Limited (“Appellant Company”) to secure certain construction related equipment on rent for carrying out certain works at a site located at Patna, Bihar. Pursuant thereto, the aforesaid companies entered into negotiations, whereupon an agreement was entered into on August 1, 2010.
The Respondent Company, thereafter, approached the Appellant Company to secure several other equipment for its Patna site, on a rental basis. Pursuant to negotiations, the companies entered into an agreement on October 2, 2010. Agreements were also entered into between the Appellant Company and Respondent Company on March 19, 2011 and April 14, 2011 to take on rent several other equipment, to carry out works at the Respondent Company’s sites located at Durgapur and Malda, West Bengal, respectively. It is pertinent that agreements dated August 1, 2010, October 2, 2010 and March 19, 2011provided the venue of arbitration proceedings to be at New Delhi. The agreement dated April 14, 2011 provided that the arbitration was to be at Kolkata. The disputes under all agreements, however, were to be referred to arbitration as per the Construction Industry Arbitration Association (“CIAA”) Rules.
Thereafter, sets of construction equipment were delivered to the Respondent Company’s site. As per terms and conditions of the agreements, the Respondent Company was required to make payment within seven days from the date of submission of monthly bills failing which it would be liable to pay interest for delayed period. Upon non receipt of payment, the Appellant Company by letter dated January 21, 2012, sought payment of all outstanding dues. In response to the same, the Respondent Company by letter dated February 1, 2012, accepted that every equipment hired by it was as per the terms of the agreements.
As the payments were not forthcoming even after such communication, the Appellant Company gave notice invoking arbitration by a communication dated March 3, 2012. Thereafter, a sole arbitrator was appointed for the purpose of conducting arbitration proceedings at New Delhi. A notice was dispatched to the Respondent Company whereby they were requested to reply and join the arbitration proceedings within fourteen days from the date of receipt of such notice, and/or make payment of an outstanding amount along with interest calculated at the rate of 18% per annum.
A copy of this communication was also dispatched to the CIAA. In its reply dated March 15, 2012, the Respondent Company denied existence of any agreement with the Appellant Company. Additionally, the Respondent Company filed a suit before the Court of Civil Judge, Junior Division at Sealdah (“Trial Court”), praying that the agreements entered into between itself and the Appellant Company be declared null and void.
The Respondent Company also sought permanent injunction restraining the Appellant Company from relying on the arbitration clauses contained in the agreements. A restraint order was passed by the Trial Court as a result of which proceedings before the arbitrator were stayed. Thereafter, an application was filed by the Appellant Company before the Trial Court under Section 5 (extent of judicial intervention) and Section 8 (power to refer parties to arbitration where there is an arbitration agreement) of the Arbitration and Conciliation Act, 1996 (“1996 Act”). By an order dated May 26, 2014, the application preferred by the Appellant Company was allowed and the plaint filed by the Respondent Company was directed to be returned. Pursuant to this, the Respondent Company filed an appeal before the Court of Additional District Judge, Second Court Sealdah, challenging the aforesaid order dated May 26, 2014.
However, as no interim order had been passed by this appellate court, the arbitration proceedings were continued (This appeal later, came to be dismissed on account of non-maintainability by an order dated February 20, 2016. The Respondent Company filed revisions petition before the CHC, which was also dismissed as not being maintainable. A special leave petition was also filed by the Respondent Company before the SC in respect of the aforesaid order, however, the said petition was also dismissed on October 6, 2017).
By an ex-parte award dated March 24, 2015 (“Award”) the arbitrator accepted the Appellant Company’s claim. The Award passed by the arbitrator covered claims in respect of all four agreements entered into between Appellant Company and Respondent Company. Pursuant to the Award being passed, the Appellant Company filed an application under Section 9 (interim measures, etc., by court) of the 1996 Act before the Delhi High Court. This application was later dismissed by the Delhi High Court on January 6, 2007 on the basis that no prima facie case was made out.
Meanwhile, the Respondent Company filed a petition under Section 34 of the 1996 Act before the District Judge, Alipore. The Respondent Company reiterated its case about the non-existence of any agreement and claimed, inter alia, that Kolkata was the venue of arbitration as per the terms of agreement dated April 14, 2011. This petition was dismissed by the District Judge, Alipore on August 13, 2018 on the point of want of jurisdiction. The Court of District Judge, Alipore noted as far as the point of jurisdiction under Section 34 applications were concerned, the jurisdiction lies where the arbitration award was passed (New Delhi in the instant case) or in the place where the seat of arbitration was agreed by the parties. The Court of District Judge, Alipore further noted the argument of the Respondent Company that as per the agreement dated April 14, 2011, the arbitration was to be conducted at Kolkata.
In response to the Respondent Company’s arguments, the Appellant Company argued that there were several agreements between both companies and as far as other agreements were concerned, the place of arbitration mentioned was at New Delhi, and further, the arbitration proceedings were anyway conducted at New Delhi. This dismissal was challenged by the Respondent Company by way of filing of a revision petition before the CHC. The revision petition was dismissed on the points of non-maintainability and availability of a remedy as under Section 37 (appealable orders) of the 1996 Act.
Thereafter, the Respondent Company filed a petition under Section 37 of the 1996 Act before the CHC which was allowed vide a judgement dated February 14, 2019. By the said judgement, the order dated August 13, 2018 passed by the Court of District Judge, Alipore was set aside by the CHC. The CHC held that the Respondent Company’s case was amenable to the jurisdiction of the Court of District Judge, Alipore.
The Appellant Company had now filed the present appeal before the SC, challenging the judgement dated February 14, 2019 passed by the CHC.
(I) Whether the Respondent Company had waived its right to raise objection on the grounds of jurisdiction after
passing of the Award, on account of not raising any submissions on the point before the arbitrator.
(ii) Whether the place of arbitration would be relevant in a domestic arbitration.
Contentions of the Appellant Company:
The Respondent Company had been denying the existence of the agreements entered into with the Appellant Company. It was only after seeing the agreements in original, that the civil courts had accepted the application preferred by the Appellant Company under Sections 5 and 8 of the 1996 Act. The decision rendered by the civil courts had even attained finality with the dismissal of the special leave petition by the SC.
Further, the Respondent Company had chosen not to participate in the arbitration proceedings and that it was only at the stage of preferring an application under Section 34 of the 1996 Act, that the Respondent Company had made a submission, regarding the venue of arbitration.
The Respondent Company had chosen not to raise an objection on the issue of jurisdiction or competence of the arbitrator to proceed with the matter pertaining to the issue of arbitration. In such scenario, the Respondent Company must be taken to have waived any objection. In any case, the arbitrator in the dispute was appointed through the CIAA, which was also the modality under the agreement which provided that Kolkata would be the venue of arbitration.
Contentions of the Respondent Company:
Every arbitration agreement had to be considered independently and if an agreement specified that the venue of arbitration was at Kolkata, party autonomy in that regard should be respected. The Respondent Company relied on the decision of SC in the case of Duro Felguera, S.A. v. Gangavaram Port Limited [2 (2017) 9 SCC 729], where there were six arbitral agreements and each one of them was subject matter of independent reference to arbitration.
Observations of the Supreme Court
The SC noted that all four agreements entered into between the Respondent Company and Appellant Company provided for arbitration and the Award rendered by the arbitrator was a common award. It was pertinent that at no stage, objections in respect of the jurisdiction were raised by the Respondent Company before the arbitrator. The Respondent Company had let the arbitration proceedings conclude and culminate in an ex-parte Award.
The point of contention was whether the Respondent Company had now waived the right to raise an objection. In the case of Narayan Prasad Lohia v. Nikunj Kumar Lohia and Others [3 (2002) 3 SCC 572] the SC had considered the amplitude and applicability of Section 4 (waiver of right to object) of the 1996 Act. Instead of an odd number of arbitrators, as contemplated under Section 10 (number of arbitrators) of the 1996 Act, the parties in this case had agreed to an even number of arbitrators. The objection in this regard, was however, not taken before the arbitrators. The SC had held that because no objections were raised regarding composition of the arbitral tribunal, as provided in Section 16 (competence of arbitral tribunal to rule on its jurisdiction) of the 1996 Act, it was deemed that the concerned party had waived its right of objection.
In the case of Duro Felguera, the submission that for convenience of either side, the original contract was split into five different contracts and as such there ought to be a composite reference to arbitration covering all of the contracts was not accepted. This was because Duro Felguera stood at an entirely different footing. It was a case of an international commercial arbitration, wherein all five contracts had separate arbitration clauses, and each of those agreements provided that the seat of arbitration was at Hyderabad.
The present case was that of an institutional arbitration where CIAA was empowered to and nominate the arbitrator. Notably, it was not as if there were completely different mechanisms for appointment under all four agreements. The only point of distinction was that in one of the agreements, the venue of arbitration was at Kolkata. The “place of arbitration” may have significance in the case of an international commercial arbitration, wherein the place of arbitration would determine the crucial law that would apply. In the instant case, however, the applicable substantive as well as curial law would be the same.
The Respondent Company could have raised submissions that arbitration pertaining to each of the four agreements be considered and dealt with separately. Pertinently, in respect of the agreement where the venue was agreed to be at Kolkata, the Respondent Company could have prayed that the arbitration proceeding be conducted accordingly.
Decision of the Supreme Court
Owing to the fact that the Respondent Company had failed to participate in the arbitration proceedings and had not raised any submission that either the arbitrator did not have jurisdiction or that he had exceeded the scope of authority, the Respondent Company must be deemed to have waived all such objections. Therefore, the Respondent Company was now precluded from raising any objection on the point of the venue of arbitration.
The conclusion, therefore, raised by the Court of District Judge, Alipore was quite correct. The CHC was in error in setting aside the order. Allowing this appeal, SC aside the judgement passed by the CHC and restored the order passed by the Court of District Judge, Alipore.
Vaish Associates Advocates View
The parties involved in arbitration ought to raise their objections before the arbitral tribunal and cannot raise such objections after passing of the award. The importance of minimalizing interference by the courts in respect of arbitral awards including on the point of jurisdiction is very reflective in this judgement.
The parties in question would not be entertained by courts at a later stage to raise objections, which they had clearly not raised at the time of conduction of arbitration proceedings. Therefore, it is important that parties recognize the essential requirement to raise contentions at an appropriate time.
Further, the SC has clarified the relevance of the place of arbitration in a domestic arbitration. Unlike in the case of an international commercial arbitration, the place of arbitration would not be of relevance in a domestic arbitration as in a domestic arbitration, both substantive and curial law would be the same.
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