Supreme Court settles the issue of waiver of objection in Arbitration: Quippo Construction Equipment Ltd. vs. Janardan Nirman Pvt. Ltd. (29 April 2020)

Case Background

Quippo Construction Equipment Ltd. (the appellant) and Janardan Nirman Pvt. Ltd. (the respondent) entered into multiple agreements for the rental of construction equipment. The first agreement, dated 1 August 2010, was for two Piling Rig HR-180 and a 300 CPM compressor. Following this, another agreement dated 2 October 2010, was made for one Piling Rig-MAIT HR 180. Two further agreements were signed on 19 March 2011 and 14 April 2011, each for one Piling Rig HR 180. The equipment was provided by the appellant to the respondent at various sites as per the respondent’s instructions.

The agreements stipulated that the respondent was to make payments within seven days of receiving monthly bills. When payments were not made, the appellant, on 21 January 2012, requested the outstanding dues. The respondent acknowledged the agreements on 1 February 2012, but failed to make the payments. Consequently, the appellant invoked arbitration on 2 March 2012.

Timeline

Course of Proceedings

Initially, the respondent denied the existence of any agreement and filed a suit in the Court of Civil Judge, Junior Division, Second Court at Sealdah, seeking to declare the agreements null and void and to restrain the appellant from relying on the arbitration clauses. The Trial Court, on 26 May 2014, accepted the appellant’s application under Sections 5 and 8 of the Arbitration and Conciliation Act, 1996, and directed the plaint to be returned, holding that the dispute was within the scope of the arbitration clause.

The respondent then filed an appeal, but the Arbitrator continued the proceedings, eventually issuing an ex-parte award on 24 March 2015, in favor of the appellant. The respondent’s petition under Section 34 of the Act before the High Court at Calcutta was dismissed on 17 July 2015. Subsequently, another petition under Section 34 was filed by the respondent in the Court of District Judge, Alipore, which was dismissed on 13 August 2018, citing lack of jurisdiction.

The High Court at Calcutta, on 14 February 2019, allowed the respondent’s petition, setting aside the order of the Court at Alipore. This decision was then challenged by the appellant before the Supreme Court.

Legal Framework

The case primarily revolves around the interpretation of the Arbitration and Conciliation Act, 1996. The key provisions are:

• Section 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.” This section deals with the concept of waiver of objections if not raised in a timely manner.
• Section 16: Competence of arbitral tribunal to rule on its jurisdiction – This section empowers the arbitral tribunal to rule on its own jurisdiction, including objections to the existence or validity of the arbitration agreement.
• Section 20: Place of arbitration – “(1) The parties are free to agree on the place of arbitration. (2) Failing any agreement referred to in sub-section (1), the place of arbitration shall be determined by the arbitral tribunal having regard to the circumstances of the case, including the convenience of the parties. (3) Notwithstanding sub-section (1) or sub-section (2), the arbitral tribunal may, unless otherwise agreed by the parties, meet at any place it considers appropriate for consultation among its members, for hearing witnesses, experts or the parties, or for inspection of documents, goods or other property.” This section allows parties to decide the place of arbitration.

Arguments

The appellant argued that the respondent had consistently denied the existence of the agreements, and after the Civil Court acknowledged them, the respondent chose not to participate in the arbitration. The appellant contended that by not raising objections about the venue or the Arbitrator’s competence during the proceedings, the respondent had waived its right to do so later. The appellant also pointed out that the Arbitrator was appointed through the Construction Industry Arbitration Association (CIAA), as per the agreement dated 14 April 2011.

The respondent argued that each arbitration agreement should be considered independently. Specifically, the agreement dated 14 April 2011, specified Kolkata as the venue for arbitration, and this should have been respected. The respondent relied on the decision of the Supreme Court in Duro Felguera, S.A. vs. Gangavaram Port Limited [ (2017) 9 SCC 729 ], where it was held that each of the six arbitral agreements was a subject matter of independent reference to arbitration.

Issues Framed by the Supreme Court

The primary issue before the Supreme Court was:

1. Whether the respondent could be said to have waived the right to raise objections about the venue of arbitration, having not raised such objections during the arbitration proceedings?

Treatment of the Issue by the Court

Authorities

Judgment

The Supreme Court held that the respondent had waived its right to object to the venue of arbitration by not raising the issue during the arbitration proceedings. The Court emphasized that the respondent was aware of the arbitration proceedings and had chosen not to participate.

The Court distinguished the case of Duro Felguera, S.A. vs. Gangavaram Port Limited [(2017) 9 SCC 729], noting that it was an International Commercial Arbitration with multiple independent contracts, whereas the present case involved a domestic arbitration with a single dispute arising from multiple agreements.

The Court observed that, “It was possible for the respondent to raise submissions that arbitration pertaining to each of the agreements be considered and dealt with separately. It was also possible for him to contend that in respect of the agreement where the venue was agreed to be at Kolkata, the arbitration proceedings be conducted accordingly.”

The Court further stated, “Considering the facts that the respondent failed to participate in the proceedings before the Arbitrator and did not raise any submission that the Arbitrator did not have jurisdiction or that he was exceeding the scope of his authority, the respondent must be deemed to have waived all such objections.”

The Court also noted, “In the circumstances, the respondent is now precluded from raising any submission or objection as to the venue of arbitration, the conclusion drawn by the Court at Alipore while dismissing Miscellaneous Case No.298 of 2015 was quite correct and did not call for any interference.”

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the respondent’s failure to raise objections during the arbitration proceedings. The Court emphasized the principle of waiver under Section 4 of the Arbitration and Conciliation Act, 1996. The Court also considered the fact that the respondent had denied the existence of the agreements initially and had not participated in the arbitration, despite being aware of it. The Court’s reasoning focused on upholding the integrity of the arbitration process and preventing parties from raising objections at a later stage after an award has been passed.

Key Takeaways

• A party waives its right to object to any non-compliance with the arbitration agreement if it proceeds with the arbitration without raising the objection in a timely manner.
• Parties must raise objections regarding jurisdiction or competence of the Arbitrator during the arbitration proceedings.
• The venue of arbitration, if specified in the agreement, must be respected, but any objection to the venue must be raised during the proceedings itself.
• This judgment reinforces the principle of party autonomy in arbitration, but also emphasizes the importance of timely objections.

Directions

The Supreme Court allowed the appeal, set aside the judgment of the High Court, and restored the order of the Court at Alipore, which had dismissed the respondent’s petition under Section 34 of the Arbitration and Conciliation Act, 1996.

Development of Law

The ratio decidendi of this case is that a party waives its right to object to the venue of arbitration if it participates in the proceedings without raising such an objection in a timely manner. This judgment clarifies the application of Section 4 of the Arbitration and Conciliation Act, 1996, regarding waiver of objections. There is no change in the previous position of law, but this judgment reinforces the importance of raising objections in a timely manner during arbitration proceedings.

Conclusion

The Supreme Court’s decision in Quippo Construction Equipment Ltd. vs. Janardan Nirman Pvt. Ltd. clarifies the principle of waiver in arbitration proceedings. The Court held that a party cannot raise objections about the venue of arbitration at a later stage if it has participated in the proceedings without raising such objections in a timely manner. This judgment reinforces the importance of timely objections and upholds the integrity of the arbitration process.