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REPORTABLE IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 5618 OF 2006

UNION OF INDIA      ...APPELLANT

VERSUS

M/S PAM DEVELOPMENT PVT. LTD.     ...RESPONDENT

ORDER  

This appeal has been filed by the Union of  

India challenging the judgment and order of the  

Calcutta High Court dated 15th June, 2005 rendered  

in APOT NO.643 of 2003.

We may notice here the bare essential facts,  

which would have a bearing on the legal controversy  

involved in the appeal.  

On 19th October, 1992, the appellant entered  

into  an  agreement  with  the  respondent  for  

construction of Industrial Covered Electrical Loco  

Shed.  Subsequently, according to the appellant,  

the agreement was terminated in terms of clause 64  

of the General Conditions of Contract by which the  

agreement between the parties was governed.  The  

twin reasons for termination of the contract were  

that  the  respondent  initially  delayed  the  

commencement of the work and subsequently executed  

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the work which was of inferior quality.  Therefore,  

the appellant had to get the balance work completed  

from another contractor.   

On  24th July,  1996,  the  respondent  raised  

certain claims against the appellant.   

On  30th September,  1996,  the  respondent  

demanded  that  the  disputes  be  referred  to  

arbitration.   

Since  the  disputes  were  not  referred  to  

arbitration,  the  respondent  approached  the  High  

Court  of  Calcutta  under  Section  11(6)  of  the  

Arbitration and Conciliation Act, 1996 (hereinafter  

referred to as “the Arbitration Act, 1996”) for the  

appointment of a sole arbitrator.  The High Court  

by its order dated 10th July, 1998 appointed Mr.  

Justice  Satyabrat  Mitra  as  the  sole  arbitrator.  

The  learned  arbitrator  duly  commenced  the  

arbitration  proceedings,  in  which  the  appellant  

fully participated.  The appellant filed statement  

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of  defence.  Upon  completion  of  the  arbitration  

proceedings, the learned arbitrator made the award  

on 25th January, 2002. The claims of the respondent  

were accepted and the award was rendered in favour  

of the contractor in the sum of Rs.1,29,89,768/-.  

Aggrieved  by  the  aforesaid  award,  the  

appellant filed an application under Section 34 of  

the Arbitration Act, 1996 before the High Court for  

setting aside the award.   The learned single judge  

of  the  High  court  dismissed  the  aforesaid  

application of the appellant on 28th October, 2003.  

Aggrieved  by  the  aforesaid  order,  the  

appellant  filed  Intra-Court  appeal  before  the  

Division Bench of the High court, which has also  

been dismissed by the impugned judgment dated 15th  

June, 2005.  

The present appeal arises out of Special Leave  

Petition (Civil) No.20316 of 2005.

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We  have  heard  the  learned  counsel  for  the  

parties at length.  

Mr.  P.P.  Malhotra,  learned  Additional  

Solicitor  General,  appearing  for  the  Union  of  

India, submitted that the High Court committed an  

error of jurisdiction by appointing a former judge  

of the High court as the sole arbitrator.  The  

appointment of the sole arbitrator was against the  

contractual  conditions  which  cannot  be  ignored.  

Therefore,  the  reference  was  before  a  Arbitral  

Tribunal which had not been properly constituted.  

He  also  submitted  that  the  arbitrator  had  no  

jurisdiction to entertain the claims with regard to  

certain excepted matters.   

On the other hand, the learned counsel for the  

respondent has submitted that the appellant having  

participated in the proceedings before the learned  

arbitrator without any demur or objection cannot  

now be permitted to raise the objection with regard  

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to  the  jurisdiction  of  the  arbitrator  at  this  

belated  stage.  Learned  counsel  further  submitted  

that  in  view  of  express  provision  contained  in  

Section  16  of  the  Arbitration  Act,  1996,  the  

Arbitral Tribunal is competent to rule on its own  

jurisdiction.  He submits that pleas with regard to  

lack  of  jurisdiction  of  the  learned  arbitrator  

ought  to  have  been  raised  not  later  than  the  

submission of the statement of defence.  Learned  

counsel  pointed  out  that  no  plea  of  lack  of  

jurisdiction of the learned arbitrator was taken by  

the  appellant  in  the  statement  of  defence.  

Furthermore,  the  appellant  also  led  evidence  in  

defence.  He also pointed out that the appellant,  

in fact, categorically accepted the jurisdiction of  

the learned arbitrator by filing a counter claim in  

the  proceedings.   He  submits  that,  in  such  

circumstances, the appellant had clearly waived its  

right to object to the constitution of the Arbitral  

Tribunal.  Similarly, the plea of excepted matters  

was also never raised by the appellant during the  

entire arbitration proceedings.  All claims have  

been decided on merits.

We have considered the submissions made by the  

learned counsel for the parties.  

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The arbitration agreement contained in clause  

64  of  the  General  Conditions  of  Contract  is  as  

under:

“64(3)(a)  ARBITRATION:   Matters  in  question,  dispute  or  difference  to  be  arbitrated  upon  shall  be  referred  for  decision to

3(a)(i) A Sole Arbitrator who shall be  the  General  Manager  or  a  Gazetted  Railway Officer nominated by him in that  behalf  in  cases  where  the  claim  in  question is below Rs.5,00,000/- (Rupees  five  lakhs)  and  in  cases  where  the  issues involved are not of complicated  nature.  The General Manager shall be  the sole Judge to decide whether or not  the issues involved are of a complicated  nature.

3(a)(ii)  Two  Arbitrators  who  shall  be  Gazetted  Railway  Officers  of  equal  status  to  be  appointed  in  the  manner  laid in Clause 64(3)(b) or all claims of  Rs.5,00,000/-  (Rupees  five  Lakhs)  and  above, and for all claims irrespective  of the amount of value of such claims if  the issues involved are of a complicated  nature the General Manager shall be the  sole Judge to decide whether the issues  involved are of a complicated nature or  not.   In  the  event  of  the  two  Arbitrators  being  divided  in  their  opinions the matter under disputes will  be referred to an Umpire to be appointed  in the manner laid down in Clause 3(b)  for his decision.  

3(a)(iii) It is a term of this contract  that  no  person  other  than  a  Gazetted  Railway  Officer,  should  act  as  an  Arbitrator/Umpire and if for any reason,  that is no possible, the matter is not  to be referred to Arbitration at all.

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3(a)(iv) In cases where the claim is up  to Rs.5,00,000/- (Rupees five lakh), the  Arbitrator(s) compare so appointed, as  the case may be, shall give the award on  all  matters  referred  to  arbitration  indicating therein break-up of the sums  awarded  separately  on  each  individual  item of disputes.  In cases where the  claim is more than Rs.5,00,000/- (Rupees  five lakh), the Arbitrator(s)/Umpire so  appointed,  as  the  case  may  be,  shall  give  intelligible  award  (i.e.  the  reasoning leading to the award should be  stated) with the sums awarded separately  on  each  individual  item  of  dispute  referred to arbitration.  

3(b) For the purpose of appointing two  arbitrators as referred to in sub-clause  (a)(ii) above, the Railway will send a  panel  of  more  than  three  names  of  Gazetted Railway Officers of one of more  departments  of  the  Railway  to  the  contractor who will be asked to suggest  to the General Manager one name out the  list for appointment as the contractor's  nominee.  The General Manager, while so  appointment  the  contractor's  nominee,  will also appoint a second arbitrator as  the  Railway's  nominee  either  from  the  panel  or  from  outside  the  panel,  ensuring that one the two arbitrators so  nominated  is  invariably  from  the  Accounts  Department.   Before  entering  upon the reference the two arbitrators  shall nominate an Umpire who shall be a  Gazetted  Railway  Officer  to  whom  the  case will be referred to in the event of  any  difference  between  the  two  arbitrators  Officers  of  the  Junior  Administrative  grade  of  the  Accounts  Department  of  the  Railways  shall  be  considered  as  of  equal  status  to  the  Officers  in  the  intermediate  administrative  grade  of  other  departments  of  the  Railway  for  the  purpose of appointment as arbitrators.”

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A persual of clause 64 would show that in case  

of  claims  which  are  below  Rs.5,00,000/-  (Rupees  

five  lakh),  the  General  Manager  or  a  Gazetted  

Railway Officer nominated by him shall be the sole  

arbitrator.  In case of claims of Rs.5,00,000/-  

(Rupees five lakh) and above, the Arbitral Tribunal  

shall consist of three arbitrators to be appointed  

in terms of clause 64(3)(b).  Under clause 64(3)

(b), the Railways will send a panel of more than  

three names of Gazetted Railway Officers from whom  

the contractor will be asked to suggest one name.  

The  General  Manager  will  appoint  the  second  

arbitrator on behalf of the Railways.  The clause  

also provided that two arbitrators shall nominate  

an Umpire who shall be a Gazetted Railway Officer.  

Since  the  Arbitration  Act,  1940  had  been  

repealed by the Arbitration Act, 1996 the provision  

in the arbitration agreement for appointment of two  

arbitrators  and  an  Umpire  had  become  redundant.  

Accordingly, the respondent requested the Railways  

to appoint the sole arbitrator.  Since the Railways  

failed to appoint the arbitrator within 30 days of  

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the  receipt  of  the  letter  dated  30th September,  

1996, the respondent moved the application under  

Section  11(6)  of  the  Arbitration  Act,  1996  for  

appointment of a sole arbitrator on 3rd January,  

1997 before the High Court. As noticed above, by  

order  dated  10th July,  1998,  the  High  Court  

appointed Mr. Justice Satyabrata Mitra as the sole  

arbitrator.  It is important to notice that this  

order dated 10th July, 1998 was not challenged by  

the appellant and, therefore, the same became final  

and binding.  This apart, the appellant failed to  

raise any objection to the lack of jurisdiction of  

the  Arbitral  Tribunal  before  the  learned  

arbitrator.  As noticed above, the appellant not  

only filed the statement of defence but also rasied  

a counter claim against the respondent.  Since the  

appellant has not raised the objection with regard  

to competence/jurisdiction of the Arbitral Tribunal  

before the learned arbitrator, the same is deemed  

to  have  been  waived  in  view  of  the  provisions  

contained in Section 4 read with Section 16 of the  

Arbitration Act, 1996.   

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Section  16  of  the  Arbitration  Act,  1996  

provides that the Arbitral Tribunal may rule on its  

own jurisdiction.  Section 16 clearly recognizes  

the principle of kompetenz-kompetenz. Section 16(2)  

mandates that a plea that the Arbitral Tribunal  

does  not  have  jurisdiction  shall  be  raised  not  

later  than  the  submission  of  the  statement  of  

defence.  Section 4 provides that a party who knows  

that  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 shall be deemed to have waived his right to  

so object.   

In our opinion, the High Court has correctly  

come to the conclusion that the appellant having  

failed to raise the plea of jurisdiction before the  

Arbitral Tribunal cannot be permitted to raise for  

the first time in the Court.  Earlier also, this  

Court had occasion to consider a similar objection  

in Bharat Sanchar Nigam Limited and another versus  

Motorola India Private Limited [(2009) 2 SCC 337].  

Upon consideration of the provisions contained in  

Section 4 of the Arbitration Act, 1996, it has been  

held as follows:

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39. Pursuant  to  section  4  of  the  Arbitration  and  Conciliation  Act,  1996,  a  party  which  knows  that  a  requirement  under  the  arbitration  agreement has not been complied with  and  still  proceeds  with  the  arbitration  without  raising  an  objection, as soon as possible, waives  their right to object. The High Court  had  appointed  an  arbitrator  in  response to the petition filed by the  appellants (sic respondent). At this  point,  the  matter  was  closed  unless  further objections were to be raised.  If further objections were to be made  after  this  order,  they  should  have  been  made  prior  to  the  first  arbitration  hearing.  But  the  appellants  had  not  raised  any  such  objections.  The  appellants  therefore  had clearly failed to meet the stated  requirement to object to arbitration  without delay. As such their right to  object is deemed to be waived.

In  our  opinion,  the  obligations  are  fully  

applicable  to  the  facts  of  this  case.   The  

appellant is deemed to have waived the right to  

object with regard to the lack of the jurisdiction  

of the Arbitral Tribunal.    

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We, therefore, see no merit in the appeal and  

the same is hereby dismissed.

No costs.  

....................,J. (SURINDER SINGH NIJJAR)

....................,J. (RANJANA PRAKASH DESAI)

NEW DELHI FEBRUARY 18, 2014