The Apex Court on 29th April, 2020 in Quippo Construction Equipment Limited v. Janardan Nirman Pvt. Ltd has ruled that a party cannot challenge/question the venue of the arbitration and contend the jurisdiction of the Tribunal at a later stage if it did not object to the proceedings being so conducted. It will be deemed to have waived all such objections. In the judgment, Court went into detail on the interplay of Section 4, 16 and 20 of the Arbitration & Conciliation Act, 1996 ("the Act"), and held that an Arbitral Tribunal is a creature of a contract and a party although has a right to object, however, if said right is not exercised by the party it is deemed to be waived. The Court while analyzing, also ventured into the importance of seat and venue and clarified that in the present case as both the applicable substantive as well as curial law would be the same, nothing would bear on that, however in international commercial arbitrations, objections with respect to the 'place of arbitration' carry a great significance.
The Appellant (Quippo Construction Equipment Ltd) and the Respondent (Janardan Nirman Pvt Ltd.) entered into four separate agreements consecutively for the purpose of their business, each agreement containing an arbitration clause as the dispute resolution mechanism. The first three agreements provided that Courts and Tribunals at New Delhi would have exclusive jurisdiction and the venue for holding arbitration proceeding would be New Delhi. While the fourth agreement provided that the Courts and Tribunals at Kolkata would have exclusive jurisdiction and the venue for holding arbitration proceeding would be Kolkata. All four arbitration agreements provided for arbitration in accordance with the arbitration Rules of the Construction Industry Arbitration Council ("CIAC Arbitration Rules")
The terms and conditions of the agreements were being duly complied by the parties until the respondent defaulted in payment of the amount due to the Appellant. The Respondent was sent notice regarding the amount due, non-compliance of which led to the Appellant invoking the arbitration clause. Notice invoking arbitration was issued stating the appointment of a Sole Arbitrator, who would be conducting the proceedings at New Delhi.
The Respondent was duly served notices of the arbitration proceeding; however it chose not to formally participate in the proceedings. It instead chose to challenge the existence of the agreements itself, wherein it preferred a suit before a Civil Court at Sealdah. Respondent continued its battle through litigation.
Before the Arbitrator, the Respondent only sought adjournments citing the pendency of the appeal and did not raise any jurisdictional objections or any objections against the claims raised by the appellant. As the Respondent was not successful in getting a stay on the arbitration proceedings, the Arbitrator carried on with the proceedings. The Arbitrator, after conducting the proceedings ex-parte, decided on claims arising out of all the four agreements, allowed the claim of the Appellant and passed a common award in its favour.
After the passing of the Award, Respondent preferred a petition under Section 34 of the Act before the Court of District Judge, Alipore. The Court of District Judge, Alipore dismissed the petition on ground of lack of jurisdiction, which led to the Respondent approaching the High Court under Section 37 of the Act. The High Court allowed the appeal and remanded the matter back to the Court of District Judge, Alipore.
Respondent challenged the existence of the agreements and disputed the venue of the arbitration. The Court relied on the Judgement of Indus Mobile Distribution Pvt. Ltd. vs. Datavind Innovations Pvt. Ltd1 which held that the jurisdiction to decide an application under Section 34 lies with the Court within whose jurisdiction the arbitral award was passed or with the Court located in in the seat of arbitration as agreed by the parties. It was concluded that since the award was passed in New Delhi by the Arbitrator, the Courts and Tribunals at New Delhi have the competent jurisdiction. The Respondent then filed an Appeal at High Court of Calcutta under Section 37 of the Act, which was allowed. The High Court ordered that the Alipore Court was to adjudicate the dispute under Section 34 of the Act.
Thereafter, the Appellant impugned the High Court Order before the Supreme Court.
ISSUE BEFORE THE SUPREME COURT
The main issue that arose before the Supreme Court was 'whether in view of Section 4 of the Act, the Respondent had waived its right to challenge the jurisdiction through its conduct during the arbitral proceedings'.
DISCUSSION & ANALYSIS
Before the Supreme Court, the Appellant contended that the issue of existence of agreements between the parties had been dealt by the Civil Court and the same attained finality with the dismissal of Special Leave Petition against the Order of Civil Court preferred before the Supreme Court. The Appellant contended that since the Respondent chose not to raise any objection on the issue of jurisdiction or competence of the Arbitrator to hear and decide the claim, the Respondent waived its right to object. On the other hand, the Respondent contended that each agreement had to be considered independently and if the agreement specified Kolkata as the venue, party autonomy in that behalf ought to be respected.
The court relied on the judgement of Narayan Prasad Lohia vs. Nikunj Kumar Lohia and Others 2 to consider the amplitude and applicability of Section 4 of the Act. The judgement considered whether the objection should have been raised by the party under Section 16 of the Act with the dispute in number of arbitrators appointed in terms of Section 10. The Court observed that a conjoint reading of Section 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). Thus it was held that if a party chooses not to object there will be a deemed waiver under Section 4 of the Act.
Applying the same principle, the Supreme Court in the present case was of the view that the Respondent has waived its right to object to the place of arbitration or that each agreement be considered and dealt with separately. The contentions raised by the Respondent were under the ambit of the Arbitral Tribunal itself to decide in accordance with Section 16 of the Act. Section 16 of the Act gives the power to the Arbitral Tribunal to decide on its own jurisdiction which is referred to as the principle of competence-competence. It is a settled principle that a party should raise their objection as to the jurisdiction of the tribunal at the first instance time.
Section 20 of the Act provided for the parties to freely choose their place of arbitration. The arbitration proceedings were conducted at New Delhi, which the Respondent failed to object to during the proceeding, thereby waiving its right to object. The Court further held that "place of the arbitration" would have made a significant difference in an international commercial arbitration but in this case it is very clear that the four agreements that have been entered between the parties were identical, the only difference being in the fourth agreement with respect to the place of arbitration. Since, in this case there was no international commercial arbitration involved, there was no dispute with respect to the applicability of the substantive law. Therefore, it can be concluded that in domestic arbitration the "place of the arbitration" does not have the same significance as in international arbitration.
The conclusions that can be drawn from this judgement are firstly, that a party waives it right to object by conduct under Section 4 of the Act, if they do not raise their objections during the arbitration proceedings. The Arbitrator has jurisdiction under Section 16 of the Act to act and rule on its own jurisdiction. Secondly, the exclusive jurisdiction lies with the Court in which jurisdiction the Award has been passed. Thirdly, in domestic arbitration the significance of place of arbitration is different from international arbitration, as place of arbitration appearing in Section 20 is derogable in domestic arbitrations as substantive as well as curial law would be same. However, in case of international arbitration substantive and curial law assumes special significance. Thus, we can interpret that in case of international arbitration "place of arbitration" is not derogable.
This is a step towards minimalizing intervention of Court in arbitral proceedings. By this judgment, the Apex Court has made it clear that objections such as jurisdictional objections and objections as to the seat & venue or pertaining to the validity of the arbitration agreement ought to be raised before the Tribunal at the appropriate time. If a party fails to do so, it would have waived its right to make such objections in the future. The Court also highlighted that the importance of seat does not have that much significance in domestic arbitrations as compared to international commercial arbitrations where a lot revolves around it.
1 (2017) 7 SCC 678
2 (2002) 3 SCC 572
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