S.N. Malhotra And Sons vs Airport Authority Of India And ... on 1 April, 2008

    S.N. Malhotra And Sons vs Airport Authority Of India And Ors. on 1/4/2008

JUDGMENT

   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 28.02.1997.
After the final bill had been prepared, the appellant set up certain claims vide
letter dated 30th 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
submitted his award on 30th 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 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 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. v. G. Harischandra Reddy and Anr. . 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. v. Raymon and Co. (India) (P) Ltd. , that it is well
established that consent cannot confer 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 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 defense; 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 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 defense; 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 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 defense 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
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 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 and Co. v. 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
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 defense,
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 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;

     (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 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 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 there from 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. v.
Puri Construction Ltd. ).

   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 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 defense [Section
16(2)].

     (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. v. S.B. Sardar Ranjit Singh ]. The question, however, remains as to what

   constitutes waiver. In its legally accepted sense, a waiver is the 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 v. G. Yelloji Rao ). 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 favor 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 favor 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. v. Delhi Electric Supply Undertaking of the Municipal
Corporation of Delhi . 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. v. Raymon and Co. (India) (P) Ltd. .

   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 favor 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
favor 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 and 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 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 JandK 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.

     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.
v. Delhi Electric Supply Undertaking of the Municipal Corporation of Delhi , 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 Prasad Lohia
v. Nikunj Kumar Lohia and Ors. 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 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 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 defense. 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
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 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. v. G. Harischandra Reddy and Anr.
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 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 made by the contractor, the
award dated 25th 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 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.

   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 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.