May 22, 2020
Quippo Judgment: Clarification By The Supreme Court On Waiver Of Right To Object And Significance Of Place Of Arbitration In Domestic Arbitration
This ruling will not only give rise to parties challenging the jurisdiction in arbitration proceedings at the threshold in a stipulated timeframe but will also help restore the faith of the parties in timely enforcement of an arbitral award…
On 29 April 2020, the Hon’ble Supreme Court of India (the “Supreme Court”) delivered its judgment in Quippo Construction Equipment Ltd. vs. Janardan Nirman Pvt. Ltd. (Civil Appeal No. 2378 of 2020; hereinafter “Quippo”). In Quippo, the Supreme Court held that non-objection by a party during the arbitral proceedings will lead to a deemed waiver by the party on all such issues which were not raised before the arbitral tribunal. Notably, the Supreme Court also held that the “place of arbitration” in domestic arbitration would not have special significance, as compared to a dispute that is subject to international commercial arbitration, since in domestic arbitration, the substantive and curial law are the same.
Factual Background
The Respondent/JanardanNirmanPvt. Ltd. (“Janardan”) is engaged in the business of infrastructure development activities. Janardan approached the Appellant/Quippo Construction Equipment Ltd. (“Quippo Construction”) to provide on rent, piling rigs at work sites as instructed by Janardan. From 2010-2011, multiple agreements (“the agreements”) were executed by the parties for the supply of equipment by Quippo Construction at the sites of Janardan at Barh in Bihar, and Durgapur and Malda in West Bengal. In accordance with the agreements, Quippo Construction provided construction equipment to Janardan at the designated work sites. However, Janardan defaulted in making payments to Quippo Construction for the services rendered by it. Exasperated with Janardan’s failure to pay, Quippo Construction sent a notice in 2012 for payment of outstanding dues. In its reply, Janardan accepted the hiring of the rigs in accordance with the agreements, but failed to make the payments that were due. As a result, in 2012, Quippo Construction sent a notice to Janardan invoking arbitration for non-payment of due amounts and appointed a Sole Arbitrator in New Delhi in accordance with the agreements with Janardan
After receiving the notice invoking arbitration, Janardan responded by denying the existence of any agreements with Quippo Construction. Interestingly, in 2012, it filed a suit against Quippo Construction before the Trial Court, Kolkata, praying, inter alia, for a declaration that the agreements are null and void. Janardan also sought a permanent injunction restraining Quippo Construction from relying on the arbitration clauses in the agreements. Thereafter, Quippo Construction filed an application under Sections 5 and 8 of the Arbitration and Conciliation Act, 1996 (the “Act”) before the Trial Court, Kolkata for referring the dispute to Arbitration. In 2014, the Trial Court, Kolkata, after relying upon the original agreements, while allowing Quippo Construction’s application and dismissing Janardan’s suit, held that it had no jurisdiction to entertain the dispute and referred the dispute to Arbitration.
In 2014, Janardan filed an appeal before the Appellate Court, Kolkata. While the dispute was pending before the Appellate Court, Janardan repeatedly sought adjournments before the Sole Arbitrator. Initially, the Sole Arbitrator allowed the adjournments, but since no stay order was passed by the Appellate Court, it conducted an ex-parte proceeding and, in 2015, passed a common ex-parte award (the “arbitral award”) accepting the claims of Quippo Construction against Janardan.
Janardan then filed a petition under Section 34 of the Act against the arbitral award before the Kolkata Court, claiming non-existence of the agreements and that, as per one of the agreements, the venue of the arbitration was in Kolkata (and not in New Delhi, where the arbitration proceeding was conducted). In 2016, the Kolkata Court dismissed the Section 34 petition. Janardan filed a revision petition before the Calcutta High Court which was also dismissed.
Not satisfied with the order of the Calcutta High Court, Janardan filed a SLP before the Supreme Court in 2017, which was also dismissed. The Supreme Court, however, directed that Janardan could raise the plea of genuineness of the agreements under Section 34 of the Act before a court of competent jurisdiction.
After the order of the Supreme Court, Janardan re-asserted its rights in the Section 34 petition filed before the Kolkata Court, which was dismissed. The Kolkata Court held that it did not have the jurisdiction to entertain the dispute. Following the judgment of the Supreme Court in Indus Mobile Distribution Pvt. Ltd. v. Datawind Innovations Pvt. Ltd.(2017) 7 SCC 678, the Kolkata Court held that the petition under Section 34 of the Act can be entertained by the courts of competent jurisdiction where the arbitral award was passed (that is, in New Delhi).
Janardan filed a revision petition before the Calcutta High Court, which was allowed in 2019. The High Court noted that since the parties, as evident from the cause title of the revision petition, were amenable to the jurisdiction of the Kolkata Court in the proceedings; it directed the Kolkata Court to adjudicate the dispute. Quippo Construction thereafter filed an SLP before the Supreme Court.
Issues before the Supreme Court
- Whether a party, which at no stage, raised objection(s) before the Sole Arbitrator and let the arbitral proceedings culminate in an ex-parte award, would have waived its right(s) to raise any objection(s)?
- Whether a party, during the arbitral proceedings, did not raise the objection(s) against the jurisdiction of the Sole Arbitrator and venue of the arbitral proceedings, waive such objection(s)?
- Significanceof “place of arbitration” in domestic arbitration proceedings.
Contentions of Quippo Construction
Quippo Construction submitted before the Supreme Court that the Trial Court, Kolkata allowed the Section 5 and 8 applications of Quippo Construction and referred the dispute to Arbitration. This decision attained finality after the dismissal of the SLP by the Supreme Court. It was further submitted that since Janardan did not participate in the arbitral proceedings and did not raise the objection of venue before the Sole Arbitrator, Janardan had waived its right to object on the issues of jurisdiction and venue of arbitration.
Contentions of Janardan
Janardan submitted that since Kolkata was the venue for the arbitration in one of the agreements, every arbitration agreement should be considered independently. It relied on the judgment of the Supreme Court in Duro Felguera S.A. v. Gangavaram Port Ltd.(2017) 9 SCC 729 wherein there were six arbitral agreements, and each was subject to separate arbitral proceedings.
Findings of the Supreme Court
The Supreme Court relied on Section 4 (waiver of right to object), Section 16 (competence of arbitral tribunal to rule on its jurisdiction) and Section 20 (place of arbitration) of the Act. The Supreme Court also relied on Section 10 (number of arbitrators; should not be even) of the Act and the judgment of the Supreme Court in Narayan Prasad Lohia v. Nikunj Kumar Lohia & Ors. (2002) 3 SCC 572, considered the scope of waiver of the right to object under Section 4 of the Act. In Narayan Prasad (supra), the party did not raise an objection under Section 16 of the Act on the number of arbitrators appointed (2 therein) and thus waived its right to object.
The Supreme Court started by observing that Duro Felguera(supra) was an international commercial arbitration and a dispute arising under Section 11(6) of the Act. In the current dispute, the agreements contemplated domestic and institutional arbitration, where theConstruction Industry Arbitration Associationwas empowered to nominate and appoint an arbitrator. The Supreme Court also noted that the agreements were of a similar nature and the only distinction was that in one of the agreements, Kolkata was the place of arbitration. The Court held that the “place of arbitration” in domestic arbitration may not have special significance, as opposed to a situation in international commercial arbitration because, in a domestic arbitration, the substantive and curial law remain the same.
The Supreme Court expressly noted that, at no stage, did Janardan raise any objections before the Arbitrator in respect of the venue. To the contrary, Janardan let the arbitral proceedings conclude and culminate in an arbitral award. Janardan could have raised objections before the Sole Arbitrator that each agreement should have been adjudicated upon independently and could have also asserted that the arbitration proceedings should be conducted in Kolkata. However, since Janardan failed to participate in the proceedings before the Sole Arbitrator and did not raise any objection on the jurisdiction of the arbitrator and/or the scope of his authority, Janardan was deemed to have waived all its objections. The Supreme Court held that Janardan was now precluded from making any submission(s) or objection(s) with respect to the jurisdiction of the Sole Arbitrator and venue of the arbitration. The Supreme Court also stated that the observation of the Calcutta High Court that the parties were amenable to the jurisdiction of the Kolkata Court was not a decisive criterion while determining the jurisdiction of a Court for a petition filed under Section 34 of the Act. The Supreme Court accordingly set aside the order of the Calcutta High Court.
Conclusion
Thejudgment of the Supreme Court in Quippo has settled the law that it is essential for parties to raise objection(s) under Section 16 of the Act on issue(s) that they want adjudicated by the arbitral tribunal. Such objection(s) must be raised before the arbitral tribunal and, if a party fails to raise such objection(s), by virtue of Section 4 of the Act, the party waives its right to object. The party is thereafter barred from raising objection(s) on such issue(s).The Supreme Court drew a distinction between international commercial arbitrations and domestic arbitrations and dismissed the submissions of Janardan that relied upon Duro Felguera (supra). In this regard, the Supreme Court held that that the arbitral proceeding in the Quippo dispute was a domestic arbitration and in such proceedings, the “place of arbitration” may not have special significance in contrast to aninternational commercial arbitration (which was the case in Duro Felguera), since in domestic arbitration, the substantive and curial law are the same.
The observation of the Supreme Court that the amenability of the parties to the jurisdiction of the Kolkata Court was not a decisive criterion while determining the jurisdiction of a Court for a petition under Section 34 of the Act. Here, the Supreme Court reiterates and follows the Supreme Court’s judgment in Indus Mobile (supra). By holding that parties waive their right(s) if they do not object during the arbitral proceedings to the venue of the proceeding, the Quippo judgment of the Supreme Court effectively prioritizes the objective of effective and time-bound adjudication of disputes by arbitration as contemplated under the Act, so that a party does not delay obtaining justice by prolonging the dispute for years. This ruling will not only give rise to parties challenging the jurisdiction in arbitration proceedings at the threshold in a stipulated timeframe but will also help restore the faith of the parties in the timely enforcement of an arbitral award. It is also vital as it has clarified the confusion prevalent regarding the place of arbitration in domestic arbitration. Hence, the judgement will act as a guide to the parties in understanding the strict compliance to provisions of the Act to be dealt with during the Arbitral proceedings.
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