Full Judgment Text
REPORTED
* IN THE HIGH COURT OF DELHI AT NEW DELHI
RESERVED ON : February 27, 2008
DATE OF DECISION : April 1, 2008
+ FAO(OS) 58/2002 and CM No.132/2002
S.N. MALHOTRA & SONS ..... Appellant
Through: Mr. Kirti Uppal and Mr. Sanjeet
Singh, Advocates
versus
AIRPORT AUTHORITY OF INDIA & ORS. ..... Respondents
Through: Mr. S.K. Chandwani and Mr. N.S.
Rahman, Advocates
CORAM:
HON'BLE THE CHIEF JUSTICE
HON'BLE MS. JUSTICE REVA KHETRAPAL
1. Whether reporters of local papers may be allowed
to see the judgment?
2. To be referred to the Reporter or not?
3. Whether judgment should be reported in Digest?
: REVA KHETRAPAL, J.
1. Challenge raised in this appeal is to the judgment and order
of the learned Single Judge dated December 12, 2001 passed in
OMP No.1/2000 and 2/2000.
2. An agreement No.36/EE(C)/AMD-II/T-II/96-97 was entered into
between the respondent herein (Airport Authority of India) and the
appellant on 18.09.1996 pertaining to the work of special repairs to
the terminal building at IGI Airport, Terminal-II. The amount settled
was negotiated at Rs.9,01,797/- for certain renovations of a
particular area in the aforesaid terminal building. The work was to
commence on 31.08.1996 and it had to be completed on
FAO(OS) 58/2002 Page 1 of 29
28.02.1997. After the final bill had been prepared, the appellant set
th
up certain claims vide letter dated 30 June, 1998. Disputes arose
regarding the aforesaid claims and certain counter-claims were
raised by the respondent. By his letter dated 06.11.1998, the
appellant invoked the arbitration clause and requested for
reference of the said disputes to arbitration. Respondent No.2,
Chief Engineer (Retd.), CPWD was appointed as sole arbitrator to
decide and make his award regarding the claims raised by the
appellant Contractor and the counter-claims by the respondent
Airport Authority of India subject, however, to their admissibility
under Clause 25 of the aforesaid agreement. The learned arbitrator
th
submitted his award on 30 September, 1999, which was assailed
before the learned Single Judge by both the appellant and the
respondent by filing petitions under Section 34 of the Arbitration and
Conciliation Act, 1996 (for short “the Act”).
3. The learned Single Judge after noticing that the primary issue
involved is as to whether the respondent Airport Authority of India
can raise the plea that the arbitrator acted without jurisdiction
when such a plea was not taken before the arbitrator, took note of
the contention of the appellant that in view of the clear language
of Section 16 of the Act, the respondent was now debarred from
raising such a plea. After referring to the relevant provisions of the
Act, however, the learned Single Judge came to the conclusion
that the appellant could be permitted to challenge the award and
FAO(OS) 58/2002 Page 2 of 29
raise the aforesaid plea after the conclusion of the arbitral
proceedings and was not debarred from doing so. Having come to
the aforesaid conclusion, the learned Single Judge went on to hold
that under Clause 25 of the Agreement, which contained the
arbitration clause, certain disputes were taken out of the jurisdiction
of the arbitrator, as was clear from the use of the opening words of
Clause 25: “Except where otherwise provided in the contract”. In
other words, certain disputes were to be treated as excepted
matters. The dispute under Clause 2 of the Agreement [which
stipulated that time was of the essence of the contract and laid
down that the contractor shall pay as compensation an amount
equal to 1% or such smaller amount as the Chief Engineer may
decide on the amount of the estimated cost of the whole work as
shown in the tender for everyday that the work remains
uncommenced, or unfinished, after the proper dates], was one
such dispute. On this premise, the learned Single Judge held that
out of the total amount, the respondent would not be liable to pay
a sum of Rs.34,664/- in OMP No.1/2000 and for similar reasons would
not be liable to pay Rs.35,159/- in OMP No.2/2000.
4. We have heard the learned counsel for the parties and
scrutinized the records. The principal contention of Mr. Kirti Uppal,
the learned counsel for the appellant is that the judgment of the
Single Judge is unsustainable as the award cannot be challenged
for want of jurisdiction of the arbitral tribunal when no objection to
the jurisdiction of the arbitral tribunal was taken under Section 16 of
FAO(OS) 58/2002 Page 3 of 29
the Act before the arbitrator. He further contends that in such
circumstances, the respondent must be deemed to have waived its
right to object and reference in this context is made by him to a
recent judgment of the Supreme Court in Krishna Bhagya Jala
Nigam Ltd. vs. G. Harischandra Reddy & Anr. AIR 2007 SC 817 . He
also contends that it would be inequitable and indeed unjust to
allow the respondent to raise objection to the jurisdiction of the
arbitrator after the passing of the award, when no such objection or
plea was sought to be raised at the relevant time.
5. Learned counsel for the respondent, on the contrary, sought
to urge that the respondent was well within its rights to insist upon
adherence to the agreement between the parties. He submits that
it is trite law that the arbitrator is to arbitrate within the terms of the
contract. He has no powers apart from those which the parties
have given him under the contract. If he has travelled beyond the
terms of the contract, he would be acting without jurisdiction
whereas if he has remained within the parameters of the contract,
his award cannot be questioned. Merely because the respondent
did not challenge the action of the arbitrator in exceeding his
jurisdiction does not mean that he cannot do so at a subsequent
stage and, as a matter of fact, under Section 34(2)(iv) of the Act, it
is always open to it to do so. The counsel further contends, relying
upon the Constitution Bench judgment of the Supreme Court in
Waverly Jute Mills Co. Ltd. vs. Raymon & Co. (India) (P) Ltd. AIR 1963
SC 90, that it is well established that consent cannot confer
FAO(OS) 58/2002 Page 4 of 29
jurisdiction and this defect is not cured by the appearance of the
parties in the proceedings, even if that is without protest.
6. Indubitably, the sole issue which arises for consideration in this
appeal is as to whether any objection to the jurisdiction of the
arbitrator as contained in Section 16, not raised before the
arbitrator, could be permitted to be raised for the first time under
Section 34.
7. For the purpose of addressing the aforesaid issue, it is deemed
expedient to reproduce the provisions of Section 16 of the Act. The
aforesaid Section is based on Article 16 of the United Nations
Commission on International Trade Law (UNCITRAL) which adopted
the Model Law on International Commercial Arbitration. Sub-
Section (1) of Section 16 corresponds to Sub-Clause (1) of Article 16.
Likewise, sub-Sections 2 and 3 of Section 16 of the Act correspond
more or less to sub-clause 2 of Article 16 of the UNCITRAL Model
Law. The preamble to the Act shows that this is so on account of
the fact that it was considered “expedient to make law respecting
arbitration and conciliation, taking into account the aforesaid
model law and rules”. Section 16 reads as under:
“ 16. Competence of arbitral tribunal to rule on its
jurisdiction.– (1) The arbitral tribunal may rule on its
own jurisdiction, including ruling on any objections
with respect to the existence or validity of the
arbitration agreement, and for that purpose,–
(a) an arbitration clause which forms part
of a contract shall be treated as an
agreement independent of the other
terms of the contract; and
(b) a decision by the arbitral tribunal that
FAO(OS) 58/2002 Page 5 of 29
the contract is null and void shall not
entail ipso jure the invalidity of the
arbitration clause.
(2) A plea that the arbitral tribunal does not have
jurisdiction shall be raised not later than the
submission of the statement of defence; however, a
party shall not be precluded from raising such a
plea merely because that he has appointed, or
participated in the appointment of, an arbitrator.
(3) A plea that the arbitral tribunal is exceeding
the scope of its authority shall be raised as soon as
the matter alleged to be beyond the scope of its
authority is raised during the arbitral proceedings.
(4) The arbitral tribunal may, in either of the cases
referred to in sub-section (2) or sub-section (3),
admit a later plea if it considers the delay justified.
(5) The arbitral tribunal shall decide on a plea
referred to in sub-section (2) or sub-section (3) and,
where the arbitral tribunal takes a decision rejecting
the plea, continue with the arbitral proceedings
and make an arbitral award.
(6) A party aggrieved by such an arbitral award
may make an application for setting aside such an
arbitral award in accordance with section 34.”
8. A bare perusal of Section 16(1) of the Act makes it abundantly
clear that the arbitral tribunal has now been rendered competent
by the legislature to rule on its own jurisdiction, including ruling on
any objections with regard to the existence or validity of the
arbitration agreement.
9. Sub-Section (2) to Sub-Section (6) of Section 16 are apposite
for the purposes of deciding the present controversy and hence are
being analysed in depth hereinafter. While sub-section (2) relates to
a plea that the arbitral tribunal does not have jurisdiction, sub-
section (3) relates to a plea that the arbitral tribunal has exceeded
its jurisdiction. Both sub-section (2) and sub-section (3) categorically
FAO(OS) 58/2002 Page 6 of 29
spell out the stage at which such a plea can be raised. Thus, sub-
section (2) says that a plea that the arbitral tribunal does not have
jurisdiction shall be raised at the earliest, i.e., not later than the
submission of the statement of defence ; and it further says that a
party shall not be precluded from raising such a plea merely
because he has appointed, or participated in the appointment of,
an arbitrator. Plea under sub-section (3) that the arbitral tribunal is
exceeding the scope of its jurisdiction shall be raised during the
arbitral proceedings and that too, as soon as the matter alleged to
be beyond the scope of its authority is raised before the arbitral
tribunal . Both the aforesaid sub-sections thereby expressly lay down
the precise point of time during the arbitral proceedings at which
the plea shall be raised before the arbitral tribunal.
10. The limitation of time imposed by sub-section (2) and sub-
section (3), however, is relaxed somewhat by the provisions of sub-
section (4) of Section 16, which is really in the nature of a proviso to
sub-sections (2) and (3). Sub-Section (4) stipulates that the arbitral
tribunal may, in either of the cases referred to in sub-section (2) or
sub-section (3), admit a later plea if it considers the delay justified .
11. Sub-Section (5) and sub-section (6) lay down the course of
action to be followed by the arbitral tribunal upon a plea being
raised either under sub-section (2) or under sub-section (3). Under
sub-section (5), the arbitral tribunal has the obligation and duty to
decide on a plea referred to in sub-section (2) or sub-section (3)
and, where it takes a decision rejecting the plea, the arbitral
FAO(OS) 58/2002 Page 7 of 29
tribunal shall continue with the arbitral proceedings and make an
award. Sub-section (6) states that a party aggrieved by such an
arbitral award may make an application for setting aside such an
arbitral award in accordance with Section 34.
12. On an analysis of the provisions of Section 16(1) to (6), in our
view, it is clear that the legislative intent was that a plea as to
jurisdiction of the arbitral tribunal or as to exceeding of its authority
must be raised at the threshold and cannot be entertained at a
subsequent stage. In other words, a plea in terms of sub-section (2)
or sub-section (3) of Section 16 of the Act not having been taken at
the initial stage, must be deemed to be waived. Indications to
show that the statutory mandate is that the plea should be raised at
the earliest as culled out by us are set out hereunder:
(i) The use of the words shall be raised not later than the
submission of the statement of defence in sub-section (2)
of Section 16.
(ii) The use of the words “ as soon as the matter alleged to be
beyond the scope of its authority is raised during the
arbitral proceedings” in sub-section (3) of Section 16.
(iii) The discretion given to the arbitral tribunal under sub-
section (4) of Section 16 to “ admit a later plea” [in either
of the cases referred to in sub-section (2) or Sub-Section
(3)] “ if it considers the delay justified.” In other words, the
arbitral tribunal must, after examining the matter, rule that
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the delay in raising objection in terms of sub-section (2) or
sub-section (3) is justified. If the delay is not justified in the
view of the arbitral tribunal, the arbitral tribunal will be at
liberty not to admit the objection with regard to its
jurisdiction and/or the scope of its authority, by passing an
order refusing to admit the plea on the ground that there
was unjustified delay.
(iv) A ruling of the arbitral tribunal on the acceptance or
rejection of the objection to its jurisdiction/competency is
mandatory as is evident from a reading of sub-section (5),
and particularly by the use of the words “shall decide on
a plea referred to in sub-section (2) or sub-section (3)”.
(v) Where the arbitral tribunal rejects the plea and proceeds
to make an award, the aggrieved party under sub-
section (6) “may make an application for setting aside
such an arbitral award” in accordance with Section 34.
The use of words “such an arbitral award” are of
significance. The legislative intent quite clearly is that the
arbitrator will rule on the objection raised or the plea
raised before the Arbitral Tribunal in terms of sub-section
(2) or sub-section (3) and it is only “ such an arbitral
award” which can be set aside in accordance with
Section 34. The words “ such an arbitral award” thus have
direct reference to an award rejecting the plea of want
FAO(OS) 58/2002 Page 9 of 29
of jurisdiction of the arbitral tribunal or want of
competency of the arbitral tribunal to deal with the
matter. “ Such an award” can only exist if the plea is
raised before the arbitrator himself and not at any
subsequent stage. The clear intent of the legislature thus
appears to be that a plea subsequently raised as to the
competence of the arbitral tribunal cannot be
entertained.
13. In SBP & Co. vs. Patel Engineering Ltd. and Anr. reported in
(2005) 8 SCC 618 , a seven Judge Bench of the Supreme Court while
noticing that a person aggrieved by the rejection of his objection
by the Tribunal on its jurisdiction or the other matters referred to in
that Section has to wait until the award is made to challenge that
decision in an appeal against the Arbitral Tribunal in accordance
with Section 34 of the Act, further noticed that an acceptance of
the objection to jurisdiction or authority could be challenged then
and there under Section 37 of the Act. In paragraph 12 of its
judgment, the Supreme Court held as follows:
“ 12. Section 16 of the Act only makes explicit what
is even otherwise implicit, namely, that the Arbitral
Tribunal constituted under the Act has the
jurisdiction to rule on its own jurisdiction, including
ruling on objections with respect to the existence or
validity of the arbitration agreement. Sub-section (1)
also directs that an arbitration clause which forms
part of a contract shall be treated as an agreement
independent of the other terms of the contract. It
also clarifies that a decision by the Arbitral Tribunal
that the contract is null and void shall not entail ipso
jure the invalidity of the arbitration clause. Sub-
section (2) of Section 16 enjoins that a party wanting
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to raise a plea that the Arbitral Tribunal does not
have jurisdiction, has to raise that objection not later
than the submission of the statement of defence,
and that the party shall not be precluded from
raising the plea of jurisdiction merely because he
has appointed or participated in the appointment
of an arbitrator. Sub-section (3) lays down that a
plea that the Arbitral Tribunal is exceeding the
scope of its authority, shall be raised as soon as the
matter alleged to be beyond the scope of its
authority is raised during the arbitral proceedings.
When the Tribunal decides these two questions,
namely, the question of jurisdiction and the question
of exceeding the scope of authority or either of
them, the same is open to immediate challenge in
an appeal, when the objection is upheld and only in
an appeal against the final award, when the
objection is overruled. Sub-section (5) enjoins that if
the Arbitral Tribunal overrules the objections under
sub-section (2) or (3), it should continue with the
arbitral proceedings and make an arbitral award.
Sub-section (6) provides that a party aggrieved by
such an arbitral award overruling the plea on lack
of jurisdiction and the exceeding of the scope of
authority, may make an application on these
grounds for setting aside the award in accordance
with Section 34 of the Act…………………………………
………………………..”
14. Sections 34 and 37, which are relevant for the present
purpose, are extracted below:
“ 34. Application for setting aside arbitral award.– (1)
Recourse to a Court against an arbitral award may
be made only by an application for setting aside
such award in accordance with sub-section (2) and
sub-section (3).
(2) An arbitral award may be set aside by the
Court only if–
(a) the party making the application furnished
proof that–
(i) a party was under some incapacity, or
(ii) the arbitration agreement is not valid
under the law to which the parties have
subjected it or, failing any indication
thereon, under the law for the time
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being in force; or
(iii) the party making the application was
not given proper notice of the
appointment of an arbitrator or of the
arbitral proceedings or was otherwise
unable to present his case; or
(iv) the arbitral award deals with a dispute
not contemplated by or not falling
within the terms of the submission to
arbitration, or it contains decisions on
matters beyond the scope of the
submission to arbitration:
Provided that, if the decisions on
matters submitted to arbitration can be
separated from those not so submitted,
only that part of the arbitral award
which contains decisions on matters not
submitted to arbitration may be set
aside; or
(v) the composition of the arbitral tribunal
or the arbitral procedure was not in
accordance with the agreement of the
parties, unless such agreement was in
conflict with a provision of this Part from
which the parties cannot derogate, or,
failing such agreement, was not in
accordance with this Part; or
(b) the Court finds that–
(i) the subject matter of the dispute is not
capable of settlement by arbitration
under the law for the time being in
force, or
(ii) the arbitral award is in conflict with the
public policy of India.
Explanation.– Without prejudice to the
generality of sub-clause (ii) it is hereby declared, for
the avoidance of any doubt, that an award is in
conflict with the public policy of India if the making
of the award was induced or affected by fraud or
corruption or was in violation of section 75 or section
81.
(3) An application for setting aside may not be
made after three months have elapsed from the
date on which the party making that application
had received the arbitral award or, if a request had
been made under section 33, from the date on
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which that request had been disposed of by the
arbitral tribunal:
Provided that if the Court is satisfied that the
applicant was prevented by sufficient cause from
making the application within the said period of
three months it may entertain the application within
a further period of thirty days, but not thereafter.
(4) On receipt of an application under sub-
section (1), the Court may, where it is appropriate
and it is so requested by a party, adjourn the
proceedings for a period of time determined by it in
order to give the arbitral tribunal an opportunity to
resume the arbitral proceedings or to take such
other action as in the opinion of arbitral tribunal will
eliminate the grounds for setting aside the arbitral
award.
37. Appealable orders.– (1) An appeal shall lie from
the following orders (and from no others) to the
Court authorized by law to hear appeals from
original decrees of the Court passing the order,
namely:-
(a) granting or refusing to grant any measure
under section 9;
(b) setting aside or refusing to set aside an
arbitral award under section 34.
(2) An appeal shall also lie to a Court from an
order of the arbitral tribunal.–
(a) accepting the plea referred in sub-section
(2) or sub-section (3) of section 16; or
(b) granting or refusing to grant an interim
measure under section 17.
(3) No second appeal shall lie from an order
passed in appeal under this section, but nothing in
this section shall affect or take away any right to
appeal to the Supreme Court.”
15. A conjoint reading of the aforesaid sections yields the
following result. If the plea raised before the arbitral tribunal in terms
of sub-section (2) or sub-section (3) of Section 16 is rejected by the
arbitral tribunal and the arbitral tribunal proceeds to make an
award, such an award can be challenged under Section 34 and an
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appeal from the said order shall lie under Section 37(1)(b) of the
Act. In other words, an appeal from an order setting aside or
refusing to set aside an arbitral award under Section 34 passed by
the Single Judge shall lie to the Court authorized by law to hear
appeals. In case, however, the arbitral tribunal accepts the
objection with regard to its jurisdiction, an appeal shall lie to a Court
therefrom under Section 37(2)(a) of the Act. But as clarified by sub-
section (3) of Section 37, no second appeal shall lie from an order
passed under Section 37(2)(a) (see Cref Finance Ltd. Vs. Puri
Construction Ltd. AIR 2001 Delhi 414).
16. In a case where objection to the jurisdiction of the arbitral
tribunal is not raised at all, Section 37(2)(a) will not be attracted at
all. Insofar as Section 37(1)(b) is concerned, as held by the
Constitution Bench in the case of Patel Engineering Ltd. (supra) , an
appeal against the final award will lie only when the objection to
jurisdiction is overruled, meaning thereby that if no objection is
raised at all before the arbitral tribunal and there is no decision of
the arbitral tribunal as to its jurisdiction, there is no question of an
appeal under Section 34 on that ground, i.e. on the ground of
jurisdiction.
17. We are fortified in coming to the above conclusion by the
provisions of Section 4 of the Act, which read as under:
“ 4. Waiver of right to object.– A party who knows
that–
(a) any provision of this Part from which the
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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.”
18. Section 4 of the Act thus deals with waiver of the right to
object, postulating four pre-conditions for waiver:
(i) Non-compliance of a provision of the statute from which
the parties may derogate or non-compliance with any
requirement under the arbitration agreement.
(ii) Knowledge of such non-compliance by the opposite
party.
(iii) Proceeding with the arbitration by the party who has
knowledge without stating his objection.
(iv) Stating of objection without undue delay or if a time limit
is provided for stating that objection, such objection must
be stated within that period of time and failure to do so
shall be deemed to be waiver of the right to object.
19. A conjoint reading of Section 4 and Section 16 yields the
following result:
(i) A plea that the arbitral tribunal does not have jurisdiction
shall be raised not later than the submission of the
statement of defence [Section 16(2)].
FAO(OS) 58/2002 Page 15 of 29
(ii) A plea that the arbitral tribunal is exceeding the scope of
its jurisdiction shall be raised as soon as the matter alleged
to be beyond the scope of its authority is raised during the
arbitral proceedings [sub-section (3)].
(iii) The arbitral tribunal shall decide on a plea referred to in
sub-section (2) or in sub-section (3) [Section 16(5)].
(iv) The arbitral tribunal if it takes a decision rejecting the plea
shall continue with the arbitral proceedings and make an
arbitral award, in which case the party aggrieved by such
an arbitral award may apply for setting aside the same in
accordance with Section 34 read with Section 16(6).
(v) A party who knows that (a) any provision of the statute
from which the parties may derogate, or (b) any
requirement under the arbitration agreement, has not
been complied with by the opposite party, and yet
proceeds with the arbitration without stating his objection
to such non-compliance, without undue delay, shall be
deemed to have waived his right to so object. (Section 4).
20. Thus, there can be no waiver unless the person against whom
the waiver is claimed had full knowledge of his rights and of facts
enabling him to take effectual action for the enforcement of such
rights [Associated Hotels of India Ltd. vs. S.B. Sardar Ranjit Singh
(1968) 2 SCR 548] . The question, however, remains as to what
constitutes waiver. In its legally accepted sense, a waiver is the
FAO(OS) 58/2002 Page 16 of 29
voluntary relinquishment or surrender of some known right or
privilege. It is an agreement to release or not to assert a right and in
that sense waiver is contractual ( Mademsetty Satyanarayana vs. G.
Yelloji Rao (1965) 2 SCR 221) . In India, however, the waiver of a
right has gained statutory acceptance in Section 115 of the
Evidence Act of 1872. In the Arbitration Act, 1940, no statutory
recognition was accorded to the plea of waiver, but in the
Arbitration and Conciliation Act, 1996 a specific statutory provision
dealing with waiver has been couched by the legislature. The
rationale behind the enactment of the aforesaid section, which is
based on Section 4 of the UNCITRAL Model Laws, appears to us to
be the inequity of a party participating in the arbitral proceedings
without raising any objection or demur, subsequently on finding that
the award has been given in favour of the opposite party, raising
the plea of lack of jurisdiction of the arbitral tribunal itself. To put it
differently, can a party who with open eyes, chooses to take the
chance of an award in its favour be allowed to resile from the stand
adopted by it and render the entire arbitral proceeding futile.
21. A similar question came up before a Bench of the Supreme
Court in the case of Dodsal (P) Ltd. vs. Delhi Electric Supply
Undertaking of the Municipal Corporation of Delhi (2001) 9 SCC 339 .
In that case, the Court felt that whether a mandatory provision of
the Arbitration Act can at all be waived required consideration by a
larger Bench in view of the earlier judgment of the Supreme Court in
Waverly Jute Mills Co. Ltd. vs. Raymon & Co. (India) (P) Ltd. reported
FAO(OS) 58/2002 Page 17 of 29
in (1963) 3 SCR 209 . Speaking for the Bench, Justice B.L. Hansaria
(as His Lordship then was) gave the following reasoning: (SCC
pp.577-79, paras 1-8)
“ 1. An absolutely inequitable stand taken by the
respondent (Delhi Electric Supply Undertaking) has
led us to examine some fundamental questions of
law. We have opened with this observation
inasmuch as the respondent has challenged the
award of the arbitrators made in favour of the
appellant on the ground that the contract, which
contained arbitration agreement, is void, because
of which there is no agreement to refer the dispute
to arbitration; and so, the arbitrators had no
jurisdiction to pass the impugned award. Such a
stand flies on the face of the respondent inasmuch
as of the two arbitrators, one, namely Shri K.L. Vijh,
had been appointed by the respondent itself. But as
the award ultimately went in favour of the
appellant, it raised the question of jurisdiction. We
have no doubt in our mind that such a stand is
inequitable, indeed highly inequitable. Question,
however, is whether the law permits such a question
to be raised.
2. The High Court accepted the contention that the
contract was void inasmuch as Sections 201 and
203 of the Delhi Municipal Corporation Act read
with Bye-law 3(1)(a) were violated. Dr Singhvi,
appearing for the respondent has urged that the
contract being void, along with it fell the arbitration
agreement contained in the contract, because of
which the arbitrators had no jurisdiction to pass the
award in question.
3. It is further submitted that in such a case
appearance of the respondents in the proceeding,
i.e., its acquiescence, would not alter the situation in
view of what has been held by a Constitution Bench
of this Court in Waverly Jute Mills Co. Ltd. v. Raymon
& Co. (India) (P) Ltd. in para 21 of which it was
stated that:
‘ ... an agreement for arbitration is the very
foundation on which the jurisdiction of the
arbitrators to act rests, and where that is not in
existence, at the time when they enter on their
FAO(OS) 58/2002 Page 18 of 29
duties, the proceedings must be held to be
wholly without jurisdiction. And this defect is not
cured by the appearance of the parties in
those proceedings, even if that is without
protest, because it is well settled that consent
cannot confer jurisdiction.’
4. The aforesaid stand brings to the fore the
following fundamental questions of law:
(1) Whether the present was a case of contract
being void or voidable?
(2) Whether a mandatory provision cannot at
all be waived?
5. As we are proposing to refer the matter to a
Constitution Bench, we may not dilate on the
questions, except stating that a perusal of
Administrative Law by Wade and Forsyth (7th Edn.,
pp.339 to 344) would show that in Ridge v. Baldwin
some of the dissenting Judges of the House of Lords
suggested that even ultra vires action might be
merely voidable. Reference has also been made to
what was held in Anisminic Ltd. v. Foreign
Compensation Commission which has dealt with the
question whether there are degrees of nullity. As to
the question of waiver of a mandatory provision, we
may refer to a recent decision of this Court in
Krishan Lal v. State of J&K in which this aspect has
been dealt with in paras 16 to 25. It has been
pointed out that even a mandatory provision can
be waived, if the provision be intended for the
benefit of the person concerned, as distinguished
from one which serves ‘an important purpose’ in
which case there would be no waiver.
6. In this connection we may also refer to the
provision contained in Section 4 of the Arbitration
and Conciliation Ordinance, 1996, which is on the
subject of ‘waiver of right to object’. It has laid
down that a party who knows (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 shall be deemed to have waived his right to
so object.
FAO(OS) 58/2002 Page 19 of 29
7. Another legal aspect is also involved in the
present case. The same is whether an arbitration
agreement can be read dehors what was
contained in the contract. The respondent having
itself appointed one of the arbitrators in writing, an
examinable question arises whether this act cannot
be said to constitute an implied agreement to refer
the matter to arbitration. It may be pointed out that
Section 7(2) of the aforesaid Ordinance recognises
a separate agreement also.
8. Though the aforesaid questions were not
examined in Waverly Jute Mills case and it would
have been open to us to decide the same
ourselves, we do not propose to do so, lest it be
thought that we are overreaching the decision by a
larger Bench. Instead, we desire that a five-Judge
Bench — Waverly being a rendering by such a
Bench — should decide whether in the context of
the legal aspects mentioned by us above, it is open
to a person like the respondent to raise the question
of lack of jurisdiction of the arbitrator(s) and thereby
deny the fruits (to the other side) of a long-fought-
and-won battle, involving huge expenditure of time,
money and energy, and thereby cause serious
damage to equity also, which is an equally
important facet to be borne in mind by the courts
when seized with deciding a lis between parties.”
22. In the said view of the matter, the referred matter came up
before a five-Judge Bench for decision. In the said decision,
reported in Dodsal (P) Ltd. vs. Delhi Electric Supply Undertaking of
the Municipal Corporation of Delhi (2001) 9 SCC 339 , the
Constitution Bench, however, keeping in view the circumstances
and long litigation of the case, held that it was not necessary to go
into the referred question and decided the case on other grounds,
leaving the question of law referred to it open to be decided in
some other appropriate proceedings.
23. A similar question against cropped up in the case of Narayan
FAO(OS) 58/2002 Page 20 of 29
Prasad Lohia vs. Nikunj Kumar Lohia and Ors. (2002) 3 SCC 572
before a two Judge Bench, wherein the following order was
passed:
“ Substitution applications are allowed.
A similar question, as is involved in this case, came
up before a Bench of this Court in the case of
Dodsal (P) Ltd. v. Delhi Electric Supply Undertaking
of the Municipal Corpn. of Delhi. In that case this
Court felt that the question whether a mandatory
provision of the Arbitration Act can at all be waived
requires consideration by a larger Bench in view of
an earlier judgment of this Court in Waverly Jute Mills
Co. Ltd. v. Raymon and Co. (India) (P) Ltd. In the
said view of the matter the Bench referred the
question to a larger Bench of this Court. It is now
noticed that the said Constitution Bench, which was
seized of the referred case, did not decide that
issue as could be seen from its decision dated 19-7-
1996 in Dodsal (P) Ltd. v. Delhi Electric Supply
Undertaking of the Municipal Corpn. of Delhi but
decided the issue on other grounds.
Since that question has not yet been decided and
the question involved is an important question of
law likely to arise in future cases, we feel it
appropriate that this issue should be decided by a
larger Bench, of at least three Hon’ble Judges and
hence, refer the petitions, namely, SLPs (C) Nos.
12384 and 13123 of 2000 to a Bench of three
Hon’ble Judges.
Accordingly, the Registry is directed to place the
papers before Hon’ble the Chief Justice for suitable
orders.”
24. Accordingly, the aforesaid matter was placed before a three-
Judge Bench which proceeded to decide the question of law
referred, i.e., whether a mandatory provision of the Arbitration and
Conciliation Act can be waived by the parties. The said legal
FAO(OS) 58/2002 Page 21 of 29
question arose in the context of Section 10 of the Act. The appellant
and the respondent therein were family members who had disputes
and differences in respect of the family businesses and properties.
The parties made their respective claims before two persons,
presumed by the Court to be arbitrators. All the parties
participated in the proceedings and eventually an award came to
be passed by the aforesaid two persons. The first and second
respondents filed applications for setting aside the said award. One
of the grounds, in both the said applications, was that the
arbitration was by two arbitrators whereas under the Arbitration and
Conciliation Act, 1996, there cannot be an even number of
arbitrators. It was contended that arbitration by two arbitrators was
against the statutory provision of the said Act (Section 10) and,
therefore, void and invalid. It was also submitted that the provisions
of sub-clause (b) of Section 4 of the Act were not applicable to the
case and even sub-clause (a) would not apply as waiver can only
be in respect of a matter from which a party could derogate. The
argument was that Section 10 of the Act was a mandatory provision
which cannot be derogated and in respect of provisions which are
non-derogable there can be no waiver. It was contended that
matters from which a party cannot derogate are those provided in
Sections 4, 8, 9, 10, 11(4) and (6), 12, 13(4), 16(2), (3) and (5), 22(4),
27, 31, 32, 33, 34(2) and (4), 35, 36, 37, 38(1) and 43(3). As against
this, matters from which a party can derogate are those provided
under Sections 11(2), 19(1) and (2), 20(1) and (2), 22(1), 24, 25, 26
FAO(OS) 58/2002 Page 22 of 29
and 31(3).
25. Repelling the aforesaid contentions, the Supreme Court
observed as follows: (SCC, pp.582-583, paras 14, 15 and 16)
“ 14. We have heard the parties at length. We have
considered the submissions. Undoubtedly, Section
10 provides that the number of arbitrators shall not
be an even number. The question still remains
whether Section 10 is a non-derogable provision. In
our view the answer to this question would depend
on the question as to whether, under the said Act, a
party has a right to object to the composition of the
Arbitral Tribunal, if such composition is not in
accordance with the said Act, and if so, at what
stage. It must be remembered that arbitration is a
creature of an agreement. There can be no
arbitration unless there is an arbitration agreement
in writing between the parties.
15. In the said Act, provisions have been made in
Sections 12, 13 and 16 for challenging the
competence, impartiality and jurisdiction. Such
challenge must however be before the Arbitral
Tribunal itself.
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. 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
FAO(OS) 58/2002 Page 23 of 29
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. ”
26. The Court further held as follows: (SCC, p.585)
“ 19………………………………………......……………….If
there is no agreement providing for the composition
of the Arbitral Tribunal or the arbitral procedure and
the composition of the Arbitral Tribunal or the
arbitral procedure was not in accordance with Part
I of the said Act then also a challenge to the award
would be available. Thus so long as the composition
of the Arbitral Tribunal or the arbitral procedure are
in accordance with the agreement of the parties,
Section 34 does not permit challenge to an award
merely on the ground that the composition of the
Arbitral Tribunal was in conflict with the provisions of
Part I of the said Act. This also indicates that Section
10 is a derogable provision.
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.”
27. Applying the test laid down in the aforesaid case and the
statutory provisions referred to hereinabove, and also keeping in
mind the fact that the respondent at no stage of the arbitral
proceedings chose to raise a challenge to the assumption of
jurisdiction by the arbitral tribunal on a matter falling in the category
FAO(OS) 58/2002 Page 24 of 29
of “excepted matters” under clause 25 of the agreement between
the parties, we are of the considered view that the respondent is
now debarred from raising such a plea for the first time under
Section 34 of the Act. A conjoint reading of Section 16(2) and
Section 4 shows that an objection to the arbitrator having
exceeded his jurisdiction falls in the category of case covered by
clause (b) of Section 4. The respondent knew that in respect of the
non-compliance of any requirement under the arbitration
agreement, it was free to raise challenge. It chose not to do so. As
laid down in Narayan Prasad Lohia (supra) , if a party chooses not to
so object there will be deemed waiver under Section 4. Lohia’s
case pertained to a statutory prohibition. In the present case, it is
the requirement of a clause in an agreement which has not been
adhered to. The respondent was all along aware of this non-
compliance and participated in the proceedings without demur.
The award in respect of the same is not to its liking. The challenge
now sought to be raised by the respondent flies in the face of its
tacit approval of the matter being dealt with by the arbitrator.
Allowing the respondent to resile from his position at this stage
without its laying any foundation for the challenge when it was free
to raise the same, would be inequitable to say the least.
28. In Krishna Bhagya Jala Nigam Ltd. vs. G. Harischandra Reddy
& Anr. AIR 2007 SC 817 relied upon by the counsel for the appellant,
the Supreme Court while determining the issue as to whether the
appellant Jal Nigam could be allowed to raise the contention, on
FAO(OS) 58/2002 Page 25 of 29
the facts and circumstances of the case, that Clause 29 of the
agreement is not an arbitration clause and due to want of
jurisdiction of the Arbitral Tribunal to adjudicate upon the claims
th
made by the contractor, the award dated 25 June, 2000
published on 14.11.2000 was a nullity, held that the Jal Nigam
having submitted to the jurisdiction of the Arbitral Tribunal and
having raised no objection to the competence of the Arbitral
Tribunal cannot be allowed to contend that Clause 29 of the
contract did not constitute an arbitration agreement by filing a
petition under Section 37(1)(b) of the Act. Paragraph 9, which
contains the ratio of the said decision, is as follows:
“ 9. We do not find any merit in the above
arguments. The plea of “no arbitration clause” was
not raised in the written statement filed by Jal
Nigam before the Arbitrator. The said plea was not
advanced before the civil court in Arbitration Case
No.1 of 2001. On the contrary, both the courts
below on facts have found that Jal Nigam had
consented to the arbitration of the disputes by the
Chief Engineer. Jal Nigam had participated in the
arbitration proceedings. It submitted itself to the
authority of the Arbitrator. It gave consent to the
appointment of the Chief Engineer as an Arbitrator.
It filed its written statements to the additional claims
made by the contractor. The executive engineer
who appeared on behalf of Jal Nigam did not
invoke Section 16 of the Arbitration Act. He did not
challenge the competence of the arbitral tribunal.
He did not call upon the arbitral tribunal to rule on
its jurisdiction. On the contrary, it submitted to the
jurisdiction of the arbitral tribunal. It also filed written
arguments. It did not challenge the order of the
High Court dated 10.9.99 passed in C.M.P. No.26/99.
Suffice it to say that both the parties accepted that
there was an arbitration agreement, they
proceeded on that basis and, therefore, Jal Nigam
cannot be now allowed to contend that Clause 29
FAO(OS) 58/2002 Page 26 of 29
of the Contract did not constitute an arbitration
agreement.”
29. In our considered opinion, the ratio of the above decision
rendered in the case of Krishna Bhagya Jal Nigam Ltd. (supra)
squarely applies to the facts of the present case. Learned counsel
for the respondents was unable to rebut the contention of the
counsel for the appellant that no plea or objection in terms of Sub-
Section (2) or Sub-Section (3) of Section 16 of the Act was raised by
the respondents before the Arbitral Tribunal and, on the contrary,
he fairly conceded that the plea was raised for the first time before
the Court.
30. We have also gone through the reference letter dated
30.12.1998 and on perusal of the same, we find that though it was
mentioned that the claims/disputes by the appellant and the
counter-claims of respondent shall be subject to their admissibility
under clause 25 of the Agreement, but no specific objection was
taken to their admissibility before the learned arbitral tribunal. In
terms of Section 16 of the Act, the respondents were required to
specifically object to the jurisdiction of the arbitral tribunal by filing
written statement/reply to the claim petition of the appellants or
otherwise during the arbitral proceedings. This, the respondents
failed to raise. The respondents not having taken any objection to
the jurisdiction of the arbitral tribunal before the arbitrator, thus the
objection must be deemed to be waived.
FAO(OS) 58/2002 Page 27 of 29
31. To conclude, although ordinarily, we would have been
inclined to hold that in so far as jurisdictional issues are concerned,
the contours of Section 34 are wide enough to enable the Court to
consider such issues though not raised before the arbitrator, apart
from other issues. But in the teeth of the statutory provisions
mandating time limits for the setting up of such pleas [Section 16(2),
16(3), 16(4)] and in the teeth of Section 4 of the Act and in view of
the law laid by the Supreme Court, jurisdictional objections, in our
view, cannot be permitted to be raised at a later point of time,
even under Section 34. To hold otherwise, would be to render
otiose the provisions of sub-sections (2) to (6) of Section 16 as well as
Section 4 of the Act, and may even result in making a serious inroad
into the provisions of Section 5 of the Act; which is aimed at
cabining and confining judicial intervention in the arbitration
process to the very minimum.
32. A cursory glance at the Act is sufficient to show that the salient
feature of the Act of 1996 in juxtaposition to the Act of 1940 is the
curb imposed on the extent of judicial intervention in the arbitration
process. Section 5, which is poised next to Section 4 of the Act,
reads as under:
“ 5. Extent of judicial intervention.– Notwithstanding
anything contained in any other law for the time
being in force, in matters governed by this Part, no
judicial authority shall intervene except where so
provided in this Part. ”
33. We, therefore, hold that the respondent must be deemed to
FAO(OS) 58/2002 Page 28 of 29
have waived any objection to the jurisdiction of the arbitral tribunal
when it chose not to raise the plea now being raised by it, though it
was fully aware of the terms of the agreement entered into
between the parties. Section 34(iv) cannot come to the rescue of
the respondent as the said section cannot be read in isolation and
allowed to render otiose the provisions of Sections 4, 5 and 16 of the
Act which, in a sense, are the high points of the Act. Any other
interpretation of the aforesaid provisions of the statute would not
only deprive the winning party of the fruit of its hard earned labour
at the end of a long drawn out battle, but, in our considered
opinion, would be opposed to public policy,as it would inevitably
result in colossal waste of time, money and energy, all of which are
necessarily expended in the arbitral process. This apart, it would
frustrate the object of the Act itself viz., to provide for expeditious
disposal of a dispute by recourse to arbitration.
34. In the result, we allow the appeals and set aside the judgment
and order of the learned Single Judge dated December 12, 2001
passed in OMP No.1/2000 and 2/2000 and uphold the arbitration
award dated 30.09.1999. FAO(OS) 58/2002 and CM No.132/2002
stand disposed of accordingly.
REVA KHETRAPAL, J
CHIEF JUSTICE
APRIL 1, 2008/km
FAO(OS) 58/2002 Page 29 of 29