FAO No.2283 of 2008 (O&M) - 1 - ****** IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH FAO No.2283 of 2008 (O&M) Date of decision:25.08.2010. M/s Gupta Rice Mill (P) Ltd. ...Appellant Versus The Punjab State Co-operative Supply and Marketing Federation Ltd. and another ...Respondents CORAM: HON’BLE MR. JUSTICE RAKESH KUMAR JAIN Present: Mr. Mrigank Sharma, Advocate, for the appellant (in FAO Nos.2283 & 1445 of 2008). Mr. R.S.Rangpuri, Advocate, for the appellant (in FAO No.3006 of 2008). Ms. Deepali Puri, Advocate, for respondent No.1 (in FAO No.2283 of 2008). Mr. S.C.Pathela, Advocate, for the respondents (in FAO No.1445 of 2008). Ms. Aabha Sood, Advocate, for Mr. Harsh Aggarwal, Advocate, for respondent No.1. (in FAO No.3006 of 2008). ***** RAKESH KUMAR JAIN, J. This order shall dispose of 3 appeals bearing FAO No.2283 of 2008 titled as `M/s Gupta Rice Mill (P) Ltd. Vs. The Punjab State Co-operative Supply and Marketing Federation Ltd. and another', FAO No.1445 of 2008 titled as 'M/s New Kisan Rice Mill Vs. Punjab State Ware Housing Corporation and another' and FAO FAO No.2283 of 2008 (O&M) - 2 - ****** No.3006 of 2008 titled as 'M/s Sant Sunder Dass Rice and General Mills v. The Punjab State Warehousing Corporation Ltd. and another'. All the aforesaid appeals are being disposed of together by this common order as the question of law involved in these appeals is the same i.e. “whether objection about jurisdiction of the Arbitrator could be raised for the first time in the petition under Section 34 of the Arbitration and Conciliation Act, 1996 [for short “the Act”] if it is not taken before the Arbitrator.” The facts, however, are extracted from FAO No.2283 of 2008 `M/s Gupta Rice Mill (P) Ltd. v. The Punjab State Co-operative Supply and Marketing Federation Ltd. and another'. A dispute arose between the Punjab State Co-operative Supply and Marketing Federation Ltd. and M/s Gupta Rice Mill (P) Ltd. on account of non-fulfillment of terms and conditions of the agreement dated 29.09.1999. The matter was referred to the Arbitrator at the instance of the Punjab State Co-operative Supply and Marketing Federation Ltd.. The Arbitrator, vide his award dated 18.06.2003, allowed a claim of Rs.32,82,976/- with interest at bank rate from 01.01.2002 onwards till its realization. The miller filed objection under Section 34 of the Act before the Court, wherein jurisdiction of the Arbitrator was challenged on the ground that he had also decided the issues which were within the purview of Managing Director of the Corporation as provided in the agreement. The objection filed under Section 34 of the Act, however, was dismissed by the learned District Judge, Ferozepur on 19.04.2006. Aggrieved against the arbitral award and the impugned FAO No.2283 of 2008 (O&M) - 3 - ****** order of the Court, present appeal has been preferred by the Miller in which it is sought to be argued that the Arbitrator has travelled beyond his jurisdiction in deciding the questions for which already an authority is provided in the agreement. Learned counsel for the appellant has relied upon a decision of this Court in the case of M/s Shree Krishna Rice Mills Vs. The Punjab State Cooperative Supply and Marketing Federation Ltd., 2003(3) P.L.J. 341 to contend that the Arbitrator had no jurisdiction to decide the 'excepted matters'. In reply, learned counsel for the respondents has submitted that the objection with regard to jurisdiction of the Arbitrator could have been raised only before him in terms of Section 16 of the Act and cannot be taken for the first time either in the objection filed under Section 34 of the Act or in the appeal filed under Section 37 of the Act. In support of the contention raised, learned counsel for the respondents has relied upon a decision of the Division Bench of Delhi High Court in the case of S.N. Malhotra and Sons Vs. Airport Authority of India and others, 2008(4) A.D. (Delhi) 424. In rebuttal, learned counsel for the appellant has submitted that the question of jurisdiction goes to the root of the case and it can be raised at any stage of the litigation. I have heard both learned counsel for the parties and perused the record with their able assistance. The question involved in this appeal has already been framed in the beginning of the judgment. Before adverting to the contention of learned counsel for the parties, it would be relevant to refer to provisions of Section 4, 5, 16 and 34 of the Act, which are FAO No.2283 of 2008 (O&M) - 4 - ****** reproduced 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.” “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.” “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 FAO No.2283 of 2008 (O&M) - 5 - ****** contract is nul 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 defence, 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 and 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.” “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 FAO No.2283 of 2008 (O&M) - 6 - ****** 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 furnishes 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; or FAO No.2283 of 2008 (O&M) - 7 - ****** (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 FAO No.2283 of 2008 (O&M) - 8 - ****** 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.” A close perusal of the Division Bench judgment of Delhi High Court in the case of S.N. Malhotra and Sons (supra) reveals that similar question was involved in that case in which the Division Bench has given the following findings after appreciation of Section 16 of the Act: - “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 analyzed 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 FAO No.2283 of 2008 (O&M) - 9 - ****** 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 defence; 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 FAO No.2283 of 2008 (O&M) - 10 - ****** 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 defence 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) of FAO No.2283 of 2008 (O&M) - 11 - ****** 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 FAO No.2283 of 2008 (O&M) - 12 - ****** 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 rased as to the competence of the arbitral tribunal cannot be entertained. The Division Bench of Delhi High Court has further discussed Section 4 and 16 of the Act together and held as under: - “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.” FAO No.2283 of 2008 (O&M) - 13 - ****** 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 it 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 defence [Section 16(2)] (ii) A plea that the arbitral tribunal is exceeding the scope of its jurisdiction shall be raisd 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)]. FAO No.2283 of 2008 (O&M) - 14 - ****** (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).” The conclusion drawn by the Division Bench of Delhi High Court is as under: - “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 FAO No.2283 of 2008 (O&M) - 15 - ****** 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.” To my mind, the reasoning of the Division Bench of Delhi High Court in the case S.N. Malhotra and Sons (supra) is in consonance with the spirit of law and this Court is inclined to follow the aforesaid reasoning. Thus, it is held that if the question of jurisdiction of the Arbitrator is not raised before him in terms of Section 16 of the Act, it cannot be raised for the first time either in the proceedings under Section 34 of the Act or in the appeal under Section 37 of the Act. In view of necessary corollary of the aforesaid discussion, all the aforesaid 3 appeals have failed and are dismissed, however, without any order as to costs. August 25, 2010 (RAKESH KUMAR JAIN) vinod* JUDGE