Monitoring Committee, Constituted by the Hon'ble Supreme Court of India v. R. B. Seth Shreeram Narsingdas
2022-12-02
ANANT RAMANATH HEGDE, P.S.DINESH KUMAR
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JUDGMENT : ANANT RAMANATH HEGDE, J. 1. This Commercial Appeal under Section 37 of the Arbitration and Conciliation Act, 1996 (Hereinafter referred to as ‘Act 1996’ for short) read with Section 13(1)(A) of the Commercial Courts Act, 2015, is arising from the judgment in Com. A.S. No. 129/2019 on the file of LXXXV Additional City Civil Court, Bengaluru. In terms of the impugned judgment dated 09.12.2021, the learned Additional City Civil Judge has allowed the Section 34 application under the Act, 1996, consequently, the award dated 20.05.2019, passed by the learned arbitrator is set aside on the ground that the learned arbitrator lacked the jurisdiction to pass the award. 2. The following questions emerge in the set of facts pleaded in this appeal: (i) Whether the arbitrator could have been appointed by the authority named in the arbitration agreement, when the application filed under Section 11(6) of the Act, to appoint an arbitrator was pending consideration before the High Court? (ii) If such an appointment is impermissible, whether participation of the claimant in the arbitral proceedings before the arbitrator, who is appointed when Section 11(6) application was pending before the court, amounts to waiver of objection relating to the jurisdiction of the arbitrator? (iii) Whether the dismissal of the application under Section 11(6) of the Act, 1996, as having become infructuous on the premise that the arbitrator has already passed an award, will preclude the party from questioning the jurisdiction of the arbitrator in Section 34 proceeding? 3. Brief facts which crop up the aforementioned questions and the facts necessary for adjudication of the case are: (i) The respondent in this appeal who is the claimant before the arbitrator, (hereinafter referred to as claimant) was the successful bidder in the auction conducted by the present appellant who is the respondent before the arbitrator (hereinafter referred as respondent) where the auction was held to sell iron ore. (ii) The agreement between the parties provided for the resolution of the dispute amicably through mutual consultation and in the event of dispute or difference remaining unresolved, same shall be settled by arbitration by referring the claims to the sole arbitrator to be appointed by the Chairman, Central Empowered Committee (‘CEC’ short). (iii) According to the claimant, the dispute arose relating to the quality of the ore and a request was made to refer the matter to arbitration.
(iii) According to the claimant, the dispute arose relating to the quality of the ore and a request was made to refer the matter to arbitration. Thus on 25.09.2015, the claimant made a request to appoint an arbitrator. The Chairman of the CEC who is authorized under Clause No. 19, to appoint the arbitrator did not appoint the arbitrator even after lapse of a year. (iv) On 15.9.2016, CMP 233/2016 is filed by the claimant invoking Section 11(6) of the Act, before the High Court, praying for appointment of an arbitrator. (v) On 10.1.2017, the Chairman of the CEC appointed Justice Anil Kumar, a retired Judge of the Delhi High Court as the arbitrator. (vi) On the next day i.e. on 11.1.2017, the arbitrator accepted the appointment. Then notice was sent by the arbitrator to the CEC as well as the claimant fixing the venue and date of appearance. (vii) On 22.3.2017, within 15 days of being informed about the constitution of the Arbitral Tribunal, (as asserted by the claimant) the claimant requested the arbitrator not to proceed further with the arbitration proceeding on the premise that the CMP 233/2016 was pending consideration before the High Court. (viii) The request letter sent by the claimant was treated as an application for the stay of further proceedings and notice on his request letter was issued to the CEC inviting objections to the said application. (ix) After hearing both parties, vide order dated 22.4.2017 the application was rejected. 4. Thereafter, the parties participated in the arbitration proceeding. Parties adduced evidence before the arbitrator. The arbitrator, vide award dated 20.5.2019, rejected the claimant’s claim. 5. After the conclusion of the proceedings before the arbitrator, CMP 233/2016 filed by the claimant to appoint the arbitrator came up for consideration. Vide order dated 17.10.2019, CMP 233/2016 stood dismissed, on the ground that the petition had become infructuous. Liberty was reserved to the claimant to question the award in an appropriate proceeding before the Court. 6. The claimant invoked Section 34 of the Act, 1996 to set aside the award on the premise that arbitrator had no jurisdiction to decide the case. 7. The Commercial Court in the exercise of power under Section 34(2)(v) of the Act, 1996 has set aside the award on the premise that the arbitrator had no jurisdiction.
6. The claimant invoked Section 34 of the Act, 1996 to set aside the award on the premise that arbitrator had no jurisdiction to decide the case. 7. The Commercial Court in the exercise of power under Section 34(2)(v) of the Act, 1996 has set aside the award on the premise that the arbitrator had no jurisdiction. The learned Commercial Court placed reliance on the judgment of the Hon'ble Apex Court in the case of Deep Trading Company vs. Indian Oil Corporation, (2013) 4 SCC 35 . 8. Assailing the said judgment, the Central Monitoring Committee - respondent No. 1 in Comm. A.S. No. 129/2019 is before this Court. 9. Heard the learned Senior Counsel Sri Udaya Holla appearing for the appellants and Sri K.G. Raghavan, learned Senior Counsel with Sri L.M. Chidanandaiah, appearing for the respondent. 10. Sri Udaya Holla, learned Senior counsel raised the following contentions: (i) Section 11(6) application filed by the claimant has been dismissed by this Court. This order was not questioned and said order being a judicial order has attained finality. Reliance is placed on SBP and Co. vs. Patel Engineering Ltd. and Another, (2005) 8 SCC 618 . (ii) The objection relating to the jurisdiction of the arbitrator is not raised by the claimant and he participated in the proceeding without any protest relating to the jurisdiction as such, he is estopped from raising the issue relating to jurisdiction. (iii) If at all there is a challenge to the jurisdiction of the arbitrator, said challenge falls under Section 16 and it has to be raised within the time stipulated for filing a statement of objection. (iv) Since the objection relating to the competence of the arbitrator is not raised within the time stipulated, the same cannot be permitted to be raised for the first time in a proceeding under Section 34 of the Act, 1996. (v) Applying Section 4 of the Act, 1996, it is to be held that the claimant has waived his right to challenge the jurisdiction of the arbitrator to decide the case. 11. Sri K.G. Raghavan learned Senior counsel appearing for the respondent raised the following contentions: (i) The Chairman of CEC had no jurisdiction to appoint the arbitrator whilst the application filed under Section 11 of the Act, 1996 seeking appointment of an arbitrator was pending consideration before this Court.
11. Sri K.G. Raghavan learned Senior counsel appearing for the respondent raised the following contentions: (i) The Chairman of CEC had no jurisdiction to appoint the arbitrator whilst the application filed under Section 11 of the Act, 1996 seeking appointment of an arbitrator was pending consideration before this Court. Admittedly, the arbitrator is appointed during the pendency of application under Section 11 of the Act, 1996. Thus, the appointment by a person who had no power to appoint is non est in the eye of law. (ii) The objection relating to the jurisdiction was raised by the claimant, before the arbitrator, by referring to the judgment in the case of Deep Trading Company (supra) and the same was raised within the stipulated period under Section 16 of Act, 1996. (iii) The arbitrator ruled on the question of jurisdiction in his favour and thereafter, proceeded to hear the dispute on merits. The present respondent who was the claimant before the arbitrator participated in the proceeding without prejudice to his contention relating to the jurisdiction of the arbitrator. (iv) This Court while dismissing the CMP 233/2016 has reserved liberty to the claimant to question the award before the competent Court and the only way to question the award by raising the grievance relating to objection was to file an application under Section 34 of the Act, 1996. The claimant has invoked Section 34 and demonstrated that the arbitrator had no jurisdiction in view of the law laid down in the case of Deep Trading Company (supra). (v) Since, there was no appointment of arbitrator by the Court as contemplated under Section 11(6) of the Act, 1996, the claimant is entitled to raise the objection relating to the jurisdiction of the arbitrator, as such right is conferred under Section 16 of the Act, 1996. 12. In light of the aforesaid contentions, this Court has to answer the questions framed above. 13. The law laid down in the case of SBP supra at paragraphs No. 47 (i), (iv), (vi), (vii) and (ix) are relevant for adjudication of the controversy in this appeal. They read as follows: (i) The power exercised by the Chief Justice of the High Court or the Chief Justice of India under Section 11(6) of the Act is not administrative. It is a judicial power.
They read as follows: (i) The power exercised by the Chief Justice of the High Court or the Chief Justice of India under Section 11(6) of the Act is not administrative. It is a judicial power. (iv) The Chief Justice or the designated Judge will have the right to decide the preliminary aspects as indicated in the earlier part of this judgment. These will be his own jurisdiction to entertain the request, the existence of a valid arbitration agreement, the existence or otherwise of a live claim, the existence of the condition for the exercise of his power, and the qualifications of the arbitrator or arbitrators. The Chief Justice or the designated Judge would be entitled to seek the opinion of an institution in the matter of nominating an arbitrator qualified in terms of Section 11(8) of the Act if the need arises but the order appointing the arbitrator could only be that of the Chief Justice or the designated Judge. (vi) Once the matter reaches the Arbitral Tribunal or the sole arbitrator, the High Court would not interfere with the orders passed by the arbitrator or the Arbitral Tribunal during the course of the arbitration proceedings and the parties could approach the Court only in terms of Section 37 of the Act or in terms of Section 34 of the Act. (vii) Since an order passed by the Chief Justice of the High Court or by the designated Judge of that Court is a judicial order, an appeal will lie against that order only under Article 136 of the Constitution to the Supreme Court. (ix) In a case where an Arbitral Tribunal has been constituted by the parties without having recourse to Section 11(6) of the Act, the Arbitral Tribunal will have the jurisdiction to decide all matters as contemplated by Section 16 of the Act. 14. In paragraph No. (i), it is held that the order passed under Section 11(6) is a judicial order. In paragraph No. (vii), it is held that the only way to question the judicial order under Section 11 (6) is to challenge the same under Article 136 of the Constitution of India. 15.
14. In paragraph No. (i), it is held that the order passed under Section 11(6) is a judicial order. In paragraph No. (vii), it is held that the only way to question the judicial order under Section 11 (6) is to challenge the same under Article 136 of the Constitution of India. 15. In Para (vi), it is held that once the matter reaches before the arbitral tribunal or the sole arbitrator, the High Court would not interfere with the orders passed by the arbitrator or arbitral tribunal during the course of arbitration proceedings and the parties can approach the Court only in terms of Section 37 of the Act, 1996 or Section 34 of the Act, 1996. Thus, it is apparent that if an objection relating to the jurisdiction of the arbitrator, raised before the arbitrator, is over-ruled by the arbitrator, then, the only remedy available to the objector is to wait for the final award and to question the jurisdiction of the arbitrator under Section 34 of the Act, 1996. Thus, the claimant who raised an objection relating to the jurisdiction of the arbitrator, before the arbitrator, could not have questioned the said order in any proceeding other than the proceeding under Section 34 of the Act, 1996. 16. Therefore, the direction in paragraph (vii) has to be understood with reference to what is stated in paragraph No. (iv). In paragraph No. (iv), the Apex court has held that, the court in the exercise of power under Section 11 (6) of the Act, 1996, can decide on its own jurisdiction to entertain the request, the existence of a valid arbitration agreement, the existence or otherwise of a live claim, the existence of the condition for the exercise of his power and on the qualifications of the arbitrator or arbitrators. 17. In CMP 233/2016, no order is passed by the learned designated Judge appointing an arbitrator nor any order is passed declining the appointment for want of an arbitration clause in the agreement. Though there is an order declining to consider the petition on merit, the said order cannot be construed as an order rejecting the petition to appoint an arbitrator on the ground that there is no clause relating to arbitration or that there is no arbitrable dispute to appoint an arbitrator.
Though there is an order declining to consider the petition on merit, the said order cannot be construed as an order rejecting the petition to appoint an arbitrator on the ground that there is no clause relating to arbitration or that there is no arbitrable dispute to appoint an arbitrator. The petition seeking the appointment of an arbitrator was dismissed as having become infructuous as the award was already passed by the arbitrator by the time the case came up for hearing. In the said proceeding, the learned designated Judge has not upheld the jurisdiction of the arbitrator appointed by the authority named in the agreement. The question relating to the validity of the appointment of the arbitrator could not have been raised in the said proceeding as the arbitrator was appointed during the pendency of the application under Section 11(6) of Act, 1996. 18. Paragraph (ix) of the SBP supra would also declare the law even in cases where the arbitral tribunal is constituted by the parties without taking recourse to Section 11(6) of the Act, 1996, the arbitral tribunal will have the jurisdiction to decide all matters contemplated by Section 16 of the Act, 1996. It is to be noted in this case that the arbitrator was appointed without taking recourse to Section 11(6) of the Act, 1996. At this juncture, it is appropriate to notice the order dated 17.10.2019 passed in CMP 223/2016 which is a petition under Section 11(6) of the Act, 1996: “Sri M. Keshava Reddy, learned Counsel for respondent No. 2 submits that the present petition is filed for appointment of advocate as sole Arbitrator. The 1st respondent already had appointed an Arbitrator, who has already passed an award which is the subject matter of the Arbitration Suit under the provisions of Section 34 of the Arbitration and Conciliation Act. If it is so, this Civil Miscellaneous Petition becomes infructuous. 2. The said submission is placed on record. 3. The submission made by the learned counsel for respondent No. 2 is not disputed by the learned counsel for the petitioner. 4. In view of the above, the Civil Miscellaneous Petition is dismissed as having become infructuous. 5. However, it is always open for the petitioner to adjudicate his claim before the appropriate Court in accordance with law.” 19.
3. The submission made by the learned counsel for respondent No. 2 is not disputed by the learned counsel for the petitioner. 4. In view of the above, the Civil Miscellaneous Petition is dismissed as having become infructuous. 5. However, it is always open for the petitioner to adjudicate his claim before the appropriate Court in accordance with law.” 19. If the ratio laid down in paragraph (ix) referred to above is kept in mind, what emerges from the order dated 17.10.2019 in CMP 223/2016 is, that the liberty is given to the claimant (petitioner in CMP 223/2016) to raise his grievance before appropriate Court in accordance with the law. 20. In view of the facts noticed above, it can be safely concluded that this Court in CMP 233/2016, has not decided the case on merits. This Court has also not decided on the validity of the appointment made by the Chairman of CEC. In fact said question cannot be decided in a petition under Section 11(6) of the Act, 1996 and the said question is outside the scope of Section 11(6) of the Act, 1996. This being the position, the order in CMP 233/2016 cannot be construed as an order upholding the appointment made by the Chairman of CEC. This Court has also not ruled that it had no jurisdiction to appoint the arbitrator. Assuming that CMP 233/2016 could have been allowed and an arbitrator could have been appointed in exercise of power under Section 11(6) of the Act, 1996, then it would lead to a strange situation where the new arbitrator to be appointed would be called upon to decide a dispute which was already decided by another arbitrator. Such a thing is incomprehensible. The fact remains that CMP 233/2016 has been dismissed reserving the liberty to take appropriate action in the Court. The liberty granted by the Court in CMP in 233/2016 is in consonance with the settled legal position under the Act, 1996. 21. Now the question is “Whether the liberty granted by the learned designated Judge is availed by the party, or is waived?” 22. The records would reveal that as soon as the claimant received notice from the arbitrator relating to the constitution of the arbitral tribunal, the claimant appeared before the arbitrator and raised an objection with regard to the jurisdiction of the arbitrator on the first available opportunity.
The records would reveal that as soon as the claimant received notice from the arbitrator relating to the constitution of the arbitral tribunal, the claimant appeared before the arbitrator and raised an objection with regard to the jurisdiction of the arbitrator on the first available opportunity. In his objection, the claimant has made a specific reference to the law laid down in the case of Deep Trading Company (supra). The letter dated 22.03.2017 addressed by the advocate for the claimant to the learned arbitrator reveals that the claimant did raise an objection before the Chairman of CEC to the effect that the Chairman could not appoint the arbitrator when an application seeking appointment of an arbitrator was pending before the High Court. The letter would also reveal that the claimant has requested the arbitrator to defer the proceedings till the matter is decided by the High Court. 23. The letter dated 22.03.2017 addressed on behalf of the claimant, has been treated as an application by the learned arbitrator and the learned arbitrator issued notice to the present appellant inviting its response. Thereafter, the learned arbitrator rejected the request of the claimant on the premise that no stay order was granted by the High Court and passed an order on 22.04.2017 fixing the date of hearing. 24. Subsequently, the claimant filed a claim statement. In the claim statement at Para 33, it is urged that it was not permissible for the Chairman of CEC to appoint an arbitrator when the application under Section 11 (6) was pending before the High Court. In paragraph 35 of the said claim statement, it is further asserted that the claimant is presenting the claim statement subject to the orders to be passed in the pending proceeding before the High Court seeking appointment of the arbitrator. 25. It is also relevant to note that on 31.10.2018 a joint application was filed by both parties before the learned arbitrator stating that the case involved complicated issues and voluminous evidence and a joint request was made by the parties to the proceeding to extend the time by six months to complete the proceeding. 26.
25. It is also relevant to note that on 31.10.2018 a joint application was filed by both parties before the learned arbitrator stating that the case involved complicated issues and voluminous evidence and a joint request was made by the parties to the proceeding to extend the time by six months to complete the proceeding. 26. Relevant portion of paragraph No. 7 in the said joint application reads as under: “.....Since the matter is pending before the Hon’ble High Court, without prejudice to the contention urged on the right of the Chairman, Central Empowered Committee to nominate the arbitrator, both the parties hereby jointly pray this Hon’ble Court to extent (sic) time for further Six Months for passing the Award by the Learned Arbitrator...” 27. Thus, from reading the above extracted portion of the application filed by both the parties, it is apparent that the objection relating to the jurisdiction of the arbitrator was raised and same was acknowledged by the present appellant. In terms of the ratio in paragraph No. 47(vi) in SPB supra, once the arbitration proceeding commences, any order passed before the final award by the arbitrator, cannot be challenged in any Court and the order passed by the Arbitrator on his jurisdiction can be challenged under Sections 34 and 37 of the Act, 1996. Thus the order of the learned arbitrator's ruling with regard to his jurisdiction could not have been questioned by the claimant before the award was passed. 28. This being the position, the next question to be considered is whether the claimant who participated in the proceedings before the Arbitrator, can turn around and contend that the arbitrator had no jurisdiction. Does the conduct of the claimant participating in the proceeding before the Arbitrator, amount to waiver of objection relating to the jurisdiction of the arbitrator? 29. The contention relating to waiver urged by Sri Udaya Holla, is to be considered in the back-drop of Section 4 of the Act, 1996: “4. Waiver of right to object - A party who knows that: (a) any provision of this Part from which the parties may derogate.
29. The contention relating to waiver urged by Sri Udaya Holla, is to be considered in the back-drop of Section 4 of the Act, 1996: “4. Waiver of right to object - A party who knows that: (a) any provision of this Part from which the parties may derogate. (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.” 30. Section 4 of the Act, 1996 deals with waiver, under certain circumstances. On reading Section 4, it is apparent that the waiver contemplated under Section 4 of the Act, 1996 is not applicable in the facts of this case. The ‘waiver’ under the Act, 1996 is governed by Section 4. It cannot be equated with ‘waiver’ as understood in common parlance. Every conduct, act or omission, which may amount to ‘waiver’ cannot be treated as ‘waiver’ under Section 4 of the Act, 1996. Section 4 of the Act, 1996, deals with two types of waivers, namely: (a) The waiver relating to the non-compliance of any of the provisions to the Act, 1996, which the parties may derogate. (b) The waiver relating to the non-compliance of requirements under the Arbitration agreement. 31. The objection relating to the jurisdiction raised by the claimant in this case is: (i) That the arbitrator was not appointed by the Chairman of the CEC within 30 days and it amounts to violation as contemplated in Section 4(b) of the Act, 1996. (ii) The appointment has taken place when the application under Section 11(6) was pending before this Court and same is impermissible as held in DEEP TRADING COMPANY supra. The expression.......... “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 expression.......... “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. found in Section 4 (b) of the Act, 1996, leaves no room for doubt that only those who participate in the proceeding without raising objection to the non compliance of procedure for appointment of an arbitrator, without any undue delay or within the prescribed period, are precluded from raising objection relating to non compliance of procedure at a later stage and shall be deemed to have waived the right to object. In other words, Section 4, provides for participation in arbitral proceeding under protest in respect of matters covered under Section 4 of the Act, 1996 and thereafter, to object to the jurisdiction of the arbitrator if the award goes against the objector. The doctrine of ‘waiver’ which is recognised under Section 4 of the Act, 1996, can be applied only if the objection is not raised as contemplated under the said provision. 32. Thus, the participation in proceeding before the arbitrator by raising the protest as provided in Section 4 is permissible. If such objection is overruled during the course of the proceedings before the arbitrator, then it is permissible to question the order overruling the objection relating to jurisdiction, in Section 34 proceeding. As already noticed, under the scheme of the Act, 1996, it is not permissible to question the order relating to the jurisdiction of the arbitrator, passed by the arbitrator, before the conclusion of the Arbitration proceeding. 33. In this background what is to be considered is whether the claimant has raised objections within the time permitted under Section 4 of the Act, 1996 or not? If the answer to the question is ‘yes’ then there is no waiver. If the answer is ‘no’ then the party participating in the proceeding before the arbitrator cannot raise the contentions which he has waived. As already noticed, the claimant has raised objection before the arbitrator contending that the appointment is invalid in view of the law laid down in the case of Deep Trading Company (supra). The objection has been raised at the earliest possible opportunity.
As already noticed, the claimant has raised objection before the arbitrator contending that the appointment is invalid in view of the law laid down in the case of Deep Trading Company (supra). The objection has been raised at the earliest possible opportunity. The objection having been overruled, the claimant has participated in the proceeding without prejudice to his contentions relating to the jurisdiction of the arbitrator. Thus it can be safely concluded that the claimant has not waived his objection by participating in the proceeding before the arbitrator. 34. Now the next question to be decided is whether the Commercial Court is justified in allowing the Section 34 application and setting aside the award on the ground that the arbitrator lacked the jurisdiction. 35. Admittedly, in this case, the arbitrator is appointed one year after the request was made, whilst the application under Section 11(6) of the Act, 1996 was pending in this Court. In view of the law laid down in the case of Deep Trading Company (supra), the appointment ought to have been made before filing of Section 11(6) application. Once the application is filed under Section 11(6) for appointment of an arbitrator, the authority to appoint the arbitrator conferred under the agreement is lost. If the appointment is made by anyone other than the designated Court during the pendency of Section 11(6) application, then such an appointment is without jurisdiction. Therefore, in our considered view, the arbitrator in this case had no jurisdiction, as the authority appointing the arbitrator itself had no jurisdiction to appoint the arbitrator. Under these circumstances the law laid down in Deep Trading Company (supra) squarely applies. The Commercial Court is justified in applying the said ratio in the case and setting aside the award. 36. Hence, the following: ORDER: (i) Appeal is dismissed. (ii) The judgment dated 09.12.2021 passed by the LXXXV Addl. City Civil Judge, Bengaluru (CCH-86) in Comm. A.S. No. 129/2019 is confirmed. No costs.