RIGHT TO OBJECT IN ARBITRATION: WHERE DO WE PLACE THE LIMIT? (Waiver of the Right to Object)

This article provides a detailed analysis regarding the background of the issue, the pertaining arguments and the impact of this judgement in the dispute resolution industry.


The Arbitration and Conciliation Act, 1996 strives to provide autonomy to the contracting parties in making a mutual decision on the place of arbitration. However, it fails to shed light on which court would have jurisdiction if either party wants to challenge the arbitral award or within what time frame such a challenge must be made. The Hon’ble Supreme Court by its ruling dated 29th April 2020 in the matter of Quippo Construction Equipment Ltd. V. Janardhan Nirman Pvt. Ltd[1] set landmark precedence of waiving the right of objection regarding the venue of domestic arbitration. With jurisdiction in Indian arbitration as the nucleus of the case, the two-judge bench of Justices UU Lalit and Vineet Saran clarified the stage at which objections to arbitral proceedings can be raised.


Background facts

Janardan Nirman Pvt Limited (Hereinafter, ‘Respondent’) is a company engaged in the business of infrastructure development activities whereas the Quippo Construction Equipment Ltd (Hereinafter, ‘Appellant’) is a company engaged in the business of providing equipment for infrastructure activities. The Respondent entered into four distinct agreements with the Appellant for the supply of construction equipment. In three agreements, the parties exclusively designated New Delhi as the venue for arbitration under the Construction Industry Arbitration Association (CIAA) rules. While in another agreement, they exclusively designated Kolkata as the venue for arbitration under the Construction Industry Arbitration Council (CIAC) rules.

When a dispute arose, the appellant appointed an Arbitrator to conduct proceedings in New Delhi. Communication of the same was made to the respondent.[2] However, the respondent denied the existence of any agreement between the parties and filed a suit in the Sealdah Trial Court to seek an injunction restraining the appellant from proceeding with arbitration. The Court then passed an order staying proceedings before the Arbitrator. Subsequently, the appellant filed an application, praying that dispute between the parties to be referred to arbitration.[3] The Court allowed this application and returned the plaint to the respondent.


Arbitration Proceedings Thus, proceedings before the Arbitrator continued. The Respondent repeatedly failed to appear before the Arbitrator as a result of which the Arbitrator passed an ex-parte award accepting the appellant’s claims in all of the agreements. Aggrieved, the Respondent filed a petition in the Alipore District Court reiterating the non-existence of any agreement between the parties and contending that Kolkata was the venue of arbitration. The Court dismissed this petition, which the respondent then challenged in the Hon’ble Calcutta High Court.

High Court Proceedings -The Hon’ble Calcutta High Court reserved the rights of the respondent to agitate all issues in the proceedings pending before the Alipore Court, which passed an order stating that under § 34 of the Act the place of jurisdiction is where the arbitration award was passed or where the seat of arbitration was agreed to by the parties. The Court accordingly held the courts of New Delhi to have jurisdiction to try the case. The respondent again challenged this order in the Calcutta High Court and succeeded in getting it set aside. The Appellant challenged the High Court’s judgement and now this suit was referred to the present appeal in the Supreme Court.


Contentions of the Appellant

The Appellant based his arguments on the premise that the Respondent denied the existence of the agreements even after the original agreements with both parties’ signatures were produced before the Civil Court whose decision had been deemed final with the Special Leave Petition of the Court. It was contended that even during the arbitral proceedings, the Respondent had not raised any objections as to the jurisdiction of the arbitration venue or the competence of the Arbitrator. It was not before the stage of preferring a petition under § 34 of the Act that a submission was raised about the venue of arbitration. In light of this delay, it must be considered that the respondent has waived off any such objection.

Contentions of the Respondent

The Respondent argued that each agreement must be construed independently of the others. By conducting arbitral proceedings in New Delhi, the agreement that specified Kolkata as the venue of arbitration was deviated from. Reliance was placed on Duro Felguer S.A. vs. Gangavaram Port Limited[4] in which the Supreme Court had held that there were six arbitral agreements, each of which should be referred independently to arbitration. The respondent concluded that since each agreement has a different arbitration clause, the Court must not commit a grave error of law by passing a common order binding on all of the agreements.


The holding of the Hon’ble Supreme Court:

The main issue that arose with respect to the matter at hand, was whether the Respondent could be said to have waived off the right to raise objections as to the venue of arbitration. In answering this question, the Court extracted § 4 of the Act which states:

4. Waiver of right to object.- A party who knows that- a) Any provision of this Part from which the parties may derogate, or b) Any requirement under the arbitration agreement, has not been complied with and yet proceeds with the arbitration without stating his objection to such non-compliance without undue delay or, if a time limit is provided for stating that objection, within that period of time, shall be deemed to have waived his right to so object.”

The Court also referred to § 10 which specifies that the number of arbitrators cannot be an even number, and to § 16 Clause 2, which states

A plea that the arbitral tribunal does not have jurisdiction shall be raised not later than the submission of the statement of defence”

and concluded that this clause had not been violated since the appellant had appointed a sole arbitrator. The Court relied on the decision in Narayan Prasad Lohia vs. Nikunj Kumar Lohia and Ors[5] in which the three-judge bench conducted a conjoint reading of the § 10 and §16 to determine whether § 10 was a derogable provision. It was concluded that it is indeed derogable because the parties have the freedom to choose whether or not to object within the time prescribed in § 16(2). If a party chooses not to object there will be a deemed waiver under § 4. Furthermore, the Court highlighted the provision for curial law in Indian arbitration under § 20:

20. Place of arbitration. - (1) The parties are free to agree on the place of arbitration. (2) Failing any agreement referred to in sub-§ (1), the place of arbitration shall be determined by the arbitral tribunal having regard to the circumstances of the case, including the convenience of the parties. (3) Notwithstanding sub-§ (1) or sub-§ (2), the arbitral tribunal may, unless otherwise agreed by the parties, meet at any place it considers appropriate for consultation among its members, for hearing witnesses, experts or the parties, or for inspection of documents, goods or other property.”

The Court noted the impracticality of the respondent’s contention of there being two different places of arbitration as

the specification of the 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 factual matrix, the substantive and curial laws would be considered one and the same. The Respondent was deemed to have waived off all objections under § 16(2) of the Act because of his non-participation in arbitral proceedings and failure to raise objections on the venue of arbitration in a timely manner, or that the Arbitrator was transcending the scope of his authority. Therefore, the Court allowed the appeal and restored the Alipore Court’s ruling, thus precluding the respondent to raise any objection regarding the venue of arbitration.


Conclusion

This landmark ruling serves as a useful reminder that a court within whose territorial limits the arbitral proceedings take place has the jurisdiction to enforce or quash an arbitral award because the Court plays a supervisory role in overseeing the functioning of all subordinate authorities and tribunals within its territorial limits. While the Hon’ble bench has justified that undue delay in raising objections to the arbitrator’s jurisdiction leads to a waiver of the party’s right to raise any such objections, it has not specified why it came to this conclusion. It has failed to elaborate on exactly why it has discouraged undue delay, or what the repercussions of such delay will be on both parties involved. Important questions have been left unaddressed like - are there any exceptions to such delay? To what extent can the court intervene in the arbitration? What is the quantum of damage caused to the aggrieved party if the other party is given a concession for the delay? Hence, this judgement raises as many questions as it answers.

References:

[1] (Civil Appeal No. 2378 of 2020) [2] Notice dated 02nd March, 2012 [3] Waiver of the Right to Object in Arbitral Proceedings, bar and bench (April 29, 2020, 4:24 PM), https://www.barandbench.com/news/litigation/waiver-of-right-to-object-in-arbitral-proceedings-what-the-supreme-court-observed-read-judgment . [4] (2017) 9 SCC 729 [5] (2002) 3 SCC 572

Submitted by:

Ritika Acharya,

Maharashtra National Law University, Nagpur.


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