India - Domestic Arbitration Receives Booster Shot From Supreme Court.

Legal News & Analysis - Asia Pacific - India - Dispute Resolution

18 May 2020

 

Introduction
 

Recently, the Supreme Court in Quippo Construction Equipment Limited V. Janardan Nirman Private Limited[1] held that if a party to an arbitration agreement chooses not to participate in arbitral proceedings, that party is deemed to have waived the right to raise objections regarding jurisdiction of the arbitral tribunal or the scope of its authority at a later stage. While dealing with objections to a domestic arbitral award, the Supreme Court also had occasion to comment on the perennial seat vs venue debate. In doing so, it inter alia observed that objections with respect to ‘place of arbitration’ may have significance in international commercial arbitrations (where the place of arbitration may determine which curial law would apply), but not so much in domestic arbitrations.

 

Brief facts

 

Quippo Construction Equipment Limited (“Appellant”) and Janardan Nirman Private Limited (“Respondent”) had entered into four separate agreements, each containing an arbitration clause. While the first three agreements designated New Delhi, the fourth agreement had designated Kolkata as the venue of arbitration. The agreements further provided that the arbitration was to be conducted under the Construction Industry Arbitration Council Rules (“CIAC Rules”) and that the parties were entitled to select the sole arbitrator from a panel of the CIAC. When disputes arose between the parties, the Appellant gave notice invoking arbitration and selected a sole arbitrator from the CIAC panel.

 

The Respondent denied existence of any agreement between the parties and chose not to participate in the arbitration which was conducted in New Delhi and covered the claims raised by the Appellant under all four agreements. Instead, the Respondent filed a suit before the District Court at Sealdah (“Sealdah Court”) inter alia seeking to permanently injunct the Appellant from relying on the arbitration clauses contained in the agreements. Accordingly, the Appellant filed an application under Sections 5 and 8 of the Arbitration & Conciliation Act, 1996 (“Act”) for reference of disputes to arbitration. These court proceedings before the Sealdah Court were eventually disposed of.

 

After a brief delay caused due to the above-mentioned court proceedings, the arbitration progressed without the Respondent participating. The proceedings eventually culminated in an ex-parte award in favour of the Appellant covering claims in respect of all the four agreements (“Award”).

 

Soon thereafter, the Appellant filed an application under Section 9 of the Act before the Delhi High Court which came to be rejected for want of a prima facie case. In parallel, the Respondent initially filed a Section 34 Application before the Calcutta High Court which was rejected for want of proper jurisdiction. Consequently, the Respondent filed an Application under Section 34 before the District Court at Alipore (“Alipore Court”), and inter alia reiterated their case about non-existence of any agreement and venue of the arbitration in one of the agreements to be Kolkata and not New Delhi.

 

The Section 34 application was dismissed by the Alipore Court which inter alia observed that given that the arbitral proceedings were conducted and the arbitral award was rendered in New Delhi, it would be the courts at New Delhi which would have jurisdiction to entertain the Section 34 Application. The Alipore Court’s decision was challenged by the Respondent before the Calcutta High Court. The Calcutta High Court set aside the appeal and remanded the matter back to the Alipore Court directing them to entertain the Section 34 application. Accordingly, the Appellant filed an appeal against this decision of the Calcutta High Court before the Supreme Court resulting in the present judgment.

 

Judgment and Analysis

 

The Supreme Court had to consider the following questions of law before it, inter alia:

 

  1. If parties do not raise objections with respect to the venue of arbitration, composition of arbitral tribunal and the existence of the arbitration agreement before the arbitral tribunal itself, do they waive their rights to object at a later stage?

 

 2. What is the significance of the ‘place of arbitration’ in domestic arbitrations?

 

While dealing with the above, the Supreme Court considered the meaning and purport of Section 4 of the Act which speaks about the waiver of a party’s right to object , Section 16 of the Act which speaks about the competence of arbitral tribunal to rule on its own jurisdiction and Section 20 of the Act regarding place of arbitration.

 

On waiver of right to object

 

The Supreme Court relied on Narayan Prasad Lohia V. Nikunj Kumar Lohia and others[2] to consider the amplitude and applicability of Section 4 of the Act and observed that the Respondent, not having raised any objection to the composition and jurisdiction of the arbitral tribunal during the arbitral proceedings itself, would have deemed to have waived its right to object. The Supreme Court further clarified the above principle as propounded in Narayan Prasad , observing that the appropriate stage for the Respondent to raise objections if any, was during the arbitral proceedings at the first instance, and choosing not to have done so, the Respondent must be deemed to have waived all such objections. It found that the objections regarding the fact that one of the agreements designated Kolkata as the venue and not New Delhi was an objection the Respondent could have raised before the sole Arbitrator instead of doing so for the very first time in a Section 34 application.

 

On significance of the place in domestic arbitrations

 

The Respondent contended that every arbitration agreement must be considered independently and if one of the agreements specified the venue to be Kolkata, the party autonomy in that behalf ought to be respected. The Respondent relied upon the case in Duro Felguera S.A. vs. Gangaram Port Limited [3] which dealt with six arbitral agreements, each of which was the subject matter of independent reference to arbitration. The Supreme Court, however, distinguished Duro Felguera observing that the court therein was dealing with an international commercial arbitration and that in each of those agreements, the seat of arbitration was at Hyderabad.

 

The Supreme Court observed that in the present case, the arbitration in question is a domestic institutional arbitration where the Arbitrator was appointed as per CIAC Rules and it was not as if there were completely different mechanisms envisaged for appointment of the arbitrator in each of the agreements. The Supreme Court further observed that the specification of ‘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 case of a domestic institutional arbitration, the applicable substantive as well as curial law would be the same, it held.

 

Conclusion

 

The Supreme Court, in a step towards lesser court interference, has made it abundantly clear that objections such as jurisdiction and validity of the arbitration agreement ought to be raised before the arbitral tribunal, failing which the parties would waive the right to raise such an objection at a later stage including at the time of challenge to the award. Parties who may wish to raise such objections would be better placed to participate in the arbitral proceedings and raise it therein, rather than adopting evasive tactics of avoiding the arbitration altogether.

 

The Supreme Court also clarifies that objections concerning the correct place of arbitration does not hold as much significance in domestic arbitrations as it does in international commercial arbitrations. Further, by upholding the mechanism of appointment of the tribunal and conduct of the arbitration under the CIAC Rules, the Supreme Court may have provided a much-needed boost to domestic institutional arbitration. This should, to a certain extent, advance the cause of making India arbitration friendly and instilling faith in domestic arbitration regime.

 

 

 

For further information, please contact:

 

Ankoosh Mehta, Partner, Cyril Amarchand Mangaldas

ankoosh.mehta@cyrilshroff.com

 

[1] Civil Appeal No 2378 of 2020

[2] 3 (2002) 3 SCC 572

[3] (2017) 9 SCC 729