WAIVER OF RIGHTS: The Indian Scenario

Authors:

Gaurav Puri, SLS, Pune

Dhruv Srivastava, Lloyd Law College, Noida


INTRODUCTION:

The Arbitration and Conciliation act, 1996[1] (Arbitration Act) embodies the Doctrine of Waiver of right to object which corresponds with Article 4 of the UNCITRAL Model Law[2]. The relevant provision is found in Section 4[3] of the Arbitration Act.


The objective of the Section has been laid down by the Supreme Court (SC) in P.Dasaratharama Reddy Complex[4] - “Section 4 narrates the circumstances in which the party, who knowingly fails to object the non-compliance of any non-mandatory provisions of Part- I or any requirement under the arbitration agreement by the other party, is deemed to have waived his right to object.”The section is intended to promote efficiency and bona-fide in the functioning of arbitral process. It is based on the general principles of ‘Estoppel’ or ‘venire contra factum proprium and Acquiescence.’


JUDICIAL DICTUMS:

The SC has had the chance to analyse the provision of Section 4 and lay down principles of law vis-à-vis the provision. In Dodsal Private Ltd[5], SC for the first time was tasked with the issue of waiver. They answered the question as to whether a mandatory provision can be waived i.e. a contract being void or voidable by placing reliance of the erstwhile Arbitration and Conciliation Ordinance, 1996. They limited the dictum in the matter to the facts of the case as at the time the Arbitration Act was a mere ordinance and referred the legal questions to a larger bench in appropriate proceedings and held that the respondents had waived their right to object with respect to the validity of the contract in light of Section 4 of the act. They placed reliance on Krishan Lal[6] in which 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.


The SC departed from its earlier dictum in Waverly Jute Mills[7] where it was held that “an agreement for arbitration is the very foundation on which the jurisdiction 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.” The advent of the Act in 1996 and the subsequent development of Section 4 led the SC to depart from the earlier principle that mandated that consent cannot confer jurisdiction’.


The SC in 2002 answered the legal question posed in Dodsal Pvt Ltd[8] (Supra) vide Narayan Prasad Lohia v. Nikunj Kumar Lohia & Other[9]s. They interpreted Section 4 in light of Section 10, 16(2), 11(3) and 34 of the Act & held the following:

  1. A conjoint reading of Section 10 and 16 shows that an ojection to the composition of the Arbitral Tribunal is a matter which is derogable. If party chooses not to object there will be a deemed waiver under section 4.

  2. The Challenge as to the number of arbitrators must be before the Arbitral Tribunal itself in light of the decision in Konkan Rly. Corpn. Ltd. V. Rani Construction Pvt. Ltd and Section 16(2) i.e. before the filing of the Statement of Defense.

  3. Even if parties via agreement have appointed only two arbitrators, that does not ipso facto mean the agreement is invalid. Under Section 11(3) the two arbitrators must then appoint a third arbitrator at preferably the beginning, but there is no reason why the two arbitrators cannot appoint a third arbitrator at a later stage.

  4. The appointment of a third arbitrator is to ensure that the arbitration proceedings are not frustrated, but, if the two arbitrators agree and give a common award there is no frustration of the proceedings.

  5. No right to challenge award arises under Section 34(2)(a)(v) if the Composition of the Arbitral tribunal or the arbitral procedure is in accordance with the agreement of the parties even though the Composition is in conflict with provisions of Part I.


The aforementioned position was upheld and reiterated by the SC in BSNL Case[10]. In Krishna Bhagya Jala Nigam Ltd[11]. , the SC firmly held that once a party fails to raise the jurisdictional issue before the tribunal, the said right is then said to be waived and a plea to raise such issue shall not be permitted. In Union of India v. Pam Development Pvt Ltd[12]. It was reiterated that if no objection with regard to competence/jurisdiction of the Arbitral Tribunal had been raised before arbitrator, the same shall be deemed to have been waived.


In Rashtriya Ispat Nigam Ltd[13]., the SC analysed Section 4 with respect to Section 8(1) which gives the power to a judicial authority to refer the matter to arbitration if a party so applies but no later than it filing “first statement on the substance”. In the present matter the issue was whether filing a counter to an ex-parte interim injunction preclude a party from filing an application under Section 8 of the Act. The SC held that a party cannot be said to have waived its right to invoke arbitration clause or acquiesced itself to jurisdiction of court before filing of “first statement on the substance of the dispute”. To invoke restriction vis-à-vis Section 8(1) due to filing of “first statement on the substance of the dispute”, what is necessary is disclosure of the entire substance in the main proceeding itself and not taking part in the supplemental proceeding. Therefore, disclosure of defence for the purpose of opposing prayer for interim injunction would not mean that substance of the dispute has already been disclosed in the main proceeding. Hence, it was held that the defendants had not waived their right to file an application under Section 8(1) and proceed for arbitration.


In Durga Charan Rautray[14], it has been clearly laid down that once disputes are referred for arbitration and rival parties have submitted to arbitral proceedings without any objection; it is no longer open to either of them to contend that arbitral proceedings were not maintainable.

RECENT POSITION:

The SC pronounced its judgment in the matter of Quippo Construction Equipment Limited vs Janardan Nirman Pvt Ltd. on April 29, 2020 and held that the mere failure of the party to participate and raise objections pertaining to the arbitrators’ jurisdiction and scope of authority would be deemed a waiver of rights from the parties.


The SC further observed that the respondents could have filed the submissions pertaining to the venue of arbitration before the Arbitrator separately, as section 16 provides for the tribunal to rule on their own jurisdiction. Since the respondent did not participate in the proceedings, the arbitration proceedings went along as planned. He failed to raise any objections pertaining to the venue or if he was exceeding his scope of authority, the courts analysis came to the conclusion that the party must have waived its right to raise such objections. The respondent was barred from raising any objections or submissions pertaining to the venue now.


The SC relied upon the case of Narayan Prasad Lohia[15], where the parties had entered into the agreement to appoint two arbitrators in case the dispute arises, even though section 10[16] provides for appointment for an odd number of arbitrators. The SC held section 10 to be a derogable provision and the parties’ failure to object to the constitution of the tribunal before the arbitrators was said to be the case of a waiver of right. Where the party chooses not to object, it will be then deemed to be a waiver of right.


The SC found the agreements to be similar and not at all much different from each other. The only distinction was that of the venue. The SC further observed that the place of arbitration has a significant importance when it comes to International Commercial Arbitration where seat designates the curial law to be applicable unless specified in the agreement, in the current case there was no such dilemma pertaining to the applicable and the curial law.


CONCLUSION: Fair, speedy and inexpensive trial by an Arbitral Tribunal are the first and paramount principle. Sec. 16[17] clearly provides for instances of issues for a party to raise before the tribunal, it explicitly mentions the grounds under which said right has to be exercised. The SC in various cases has defined, differentiated and propounded upon the non-obstante clauses and derogatory clauses. If a party fails to follow procedure for raising their dispute at the right stage, is said to have waived of their right to raise an objection. Time and again the position which has been reiterated by the SC is that the parties is said to have waived of their right to object if the respective issue was not raised before the tribunal at the proper stage as explicitly mentioned in the Arbitration Act.

[1] The Arbitration and Conciliation Act, 1996 [2] UNCITRAL Model Law on International Commercial Arbitration, Art. 4. [3] The Arbitration and Conciliation Act, 1996, S.4. [4] P. Dasaratharama Reddy Complex v. Govt. of Karnataka, (2014) 2 SCC 201. [5] Dodsal (P) Ltd. v. Delhi Electric Supply Undertaking, (2001) 9 SCC 339. [6] Krishan Lal v. State of J&K, (1994) 4 SCC 422. [7] Waverly Jute Mills Co. Ltd. v. Raymon & Co. (India) (P) Ltd, (1963) 3 SCR 209. [8] Supra Note 5. [9] (2002) 3 SCC 572. [10] BSNL v. Motorola India (P) Ltd, (2009) 2 SCC 337. [11] Krishna Bhagya Jala Nigam Ltd. v. G. Harishchandra Reddy, (2007) 2 SCC 720. [12] (2019) 8 SCC 112 [13] Rashtriya Ispat Nigam Ltd. v. Verma Transport Co., (2006) 7 SCC 275. [14] Durga Charan Rautray v. State of Orissa, (2012) 12 SCC 513. [15] Supra Note 9. [16] The Arbitration and Conciliation Act, 1996, S. 10. [17] The Arbitration and Conciliation Act, 1996, S. 16.

155 views2 comments
 

©2020 by JURIS COGNITIONIS. Proudly created with Wix.com