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Synopsis

The Supreme Court has said that a party cannot raise objection to the jurisdiction of the arbitrator after submission of the statement of defence.

A bench of Justices Abhay S Oka and Ujjal Bhuyan cited Sub-Section (2) of Section 16 of the Arbitration and Conciliation Act, to point out, "There is a clear bar on raising a plea of the lack of jurisdiction of the Arbitral Tribunal after submission of the statement of defence."

In the case, the respondent, Union government executed a contract in favour of the appellant, M/s Vidyawati Construction Company to construct a building for the office of the General Manager, Railway Electrification Project, Allahabad.

There was a dispute regarding the amount to be paid to the appellant under the contract. The contract provided for appointing an Arbitral Tribunal consisting of three Arbitrators. Initially, on an application made by the respondent, the Chief Justice of the High Court appointed two Arbitrators with a direction to them to appoint an Umpire. As the Arbitrators did not nominate the Umpire, the respondent filed another application before the learned.Chief Justice. Ultimately, an order was passed appointing one P K Sharma as the Umpire.

Subsequently, the said Sharma resigned. Therefore, the appellant filed an application seeking modification of the earlier order contending that a presiding Arbitrator may be appointed who may not belong to any Government department. On that application, on September 26, 2003, the Chief Justice appointed a retired Chief Justice of the High Court as the sole Arbitrator.

The proceedings commenced before the sole Arbitrator. After filing the statement of defence, an objection to the jurisdiction of the sole Arbitrator was raised on the ground that the arbitration clause in the contract provided for the appointment of three Arbitrators.

The sole Arbitrator rejected the said objection. Ultimately, an award was made on February 21, 2008, which was challenged by the respondent on various grounds by filing a petition under Section 34 of the Arbitration and Conciliation Act, 1996 before the learned District Judge, Allahabad.

In the exercise of powers under Section 34 of the Arbitration Act, the District Judge proceeded to set aside the award only on the ground that the composition of the Arbitral Tribunal was illegal as the sole Arbitrator could not have been appointed. In an appeal preferred under Section 37 of the Arbitration Act by the appellant, the High Court has confirmed the judgment of the District Judge.

A counsel appearing for the appellant, construction company contended that in the proceedings of December 5, 2003, it is recorded that the respondent agreed and accepted the order of the Chief Justice of appointing the sole Arbitrator. He pointed out that the respondent filed the statement of defence and the issue of jurisdiction of the sole Arbitrator was not raised in the statement of defence.

Additional Solicitor General, appearing for the Union government, submitted that the respondent was well within its rights to raise the objection under Section 16 of the Arbitration Act on April 24, 2004. He submitted that on a plain reading of the arbitration clause in the contract, the sole Arbitrator could not have been appointed and, hence, the issue of jurisdiction was validly raised before the sole Arbitrator. He would, therefore, submit that no interference is called for with the impugned judgments.

After hearing the counsel, the bench said, by the order of September 26, 2003, the Chief Justice appointed the sole Arbitrator. The sole Arbitrator entered into the arbitral proceedings and, on December 5, 2003, a meeting was held in the presence of the Advocates representing both the parties.

"Thus, it is crystal clear that the respondent agreed that the Arbitrator appointed under the order of September 26, 2003 was to act as the sole Arbitrator. A specific agreement on the part of the respondent to that effect has been recorded in the proceedings of December 5, 2003," the court said.

The bench said it is pertinent to note that the respondent expressly agreed to file the same statement of defence which was filed before the earlier arbitrator by January 15, 2004.

"In fact, in the order of October 20, 2004, while rejecting the preliminary objection, the sole Arbitrator had recorded that the time granted earlier to file a statement of defence was extended on January 25, 2004. Instead of filing a fresh statement of defence, on February 14, 2004, the respondent filed a copy of the statement of claim filed before the earlier Arbitral Tribunal," the bench noted.

The court also noted time was granted to the respondent on more than one occasion to come out with an application for modification of the statement of defence. Notwithstanding the grant of time, the respondent did not come out with any application for modification of the statement of defence and on April 24, 2004, the respondent filed an application objecting to the jurisdiction, it said.

In view of the clear bar on raising a plea of the lack of jurisdiction of the Arbitral Tribunal after submission of the statement of defence, the bench said, the respondent could not have objected to the jurisdiction of the sole Arbitrator.

"Hence, the objection raised by way of an application dated 24th April 2004 was rightly rejected by the learned Arbitrator by the order dated 20th October, 2004," the bench said.

The bench held in view of the respondent's conduct and sub-Section (2) of Section 16 of the Arbitration Act, Sections 34 and 37 Courts were not right in upholding the respondent's objection to the jurisdiction of the Arbitral Tribunal. Therefore, the impugned judgments cannot be sustained, it said.

The court set aside the impugned judgment of November 17, 2020 passed by the High Court and the impugned judgment of September 9, 2013 passed by the District Judge, Allahabad.

It restored the arbitration case to the district judge, Allahabad and directed the parties to appear over there on February 7, 2025.

The court directed District Judge, Allahabad, to hear and decide Arbitration Case on merits.

"We, however, make it clear that the issue of jurisdiction of the sole Arbitrator stands concluded and the said issue cannot be agitated by the respondent. All the contentions of the parties, except the contention of bar of jurisdiction in the petition, pleaded in the petition under Section 34 of the Arbitration Act, are kept open," the bench said.

The bench also directed the District Judge, Allahabad to give the necessary priority to the disposal of the restored petition as it was of the year 2008.

"If the Principal District Judge finds that the jurisdiction to decide the petition under Section 34 of the Arbitration Act vests in the Commercial Court, he shall transfer the restored Petition to the appropriate Commercial Court," the court ordered.

Case Title (download judgment): s Vidyawati Construction Company Vs Union of India