[This guest post is authored by Ritika Acharya, a student at Maharashtra National Law University (MNLU), Mumbai. Any query regarding this article can be addressed to her at firstname.lastname@example.org]
Quippo Construction v. Janardhan Nirman: Right to Object to the Venue in a Domestic Arbitration
On 29 April 2020, the Supreme Court ruled in Quippo Construction Equipment v. Janardhan Nirman (Quippo) that a party cannot object to the venue of an arbitration if, despite having requisite notice and opportunity at the time, no such objection is raised during the arbitral proceedings.
Janardan Nirman Pvt Limited (Respondent) is a company engaged in the business of infrastructure development activities. The Appellant, Quippo Construction Equipment Ltd, is a company engaged in the business of providing equipment for infrastructure activities.
The parties entered into four distinct agreements for the supply of construction equipment. Under three of these, the parties designated New Delhi as the venue for arbitration, to be administered by the Construction Industry Arbitration Association (CIAA). In the remaining agreement, they agreed to Kolkata as the venue for arbitration, to be administered by the the Construction Industry Arbitration Council (CIAC).
When a dispute arose, the CIAA nominated a sole arbitrator to conduct proceedings in New Delhi. The respondent was adequately notified.
Denying the existence of any agreement between the parties, the respondent filed a suit in the Sealdah Court seeking an injunction against the appellant from proceeding with arbitration. While the Sealdah Court initially passed an order restraining the arbitration proceedings, the matter was referred to arbitration after the appellant filed an application under Section 8 of the Arbitration Act.
On resumption of arbitral proceedings, despite adequate notice and opportunities provided, the respondent failed to appear and present its case before the arbitrator. Eventually, the arbitrator passed an ex-parte award accepting the appellant’s claims in all of the agreements.
Section 34 proceedings
Aggrieved, the respondent filed a petition under Section 34 of the Arbitration Act in the Alipore District Court seeking the award to be set aside [Section 34 Petition]. Among other things, the respondent argued that the award should be set aside since there was no agreement between the parties and, assuming there was, Kolkata was the venue of arbitration. The arbitrator had wrongly held the arbitration in Delhi. The Section 34 Petition was dismissed by the Alipore District Court; after which the respondent filed an appeal before the Calcutta High Court.
The High Court reserved the rights of the respondent to agitate all issues in the proceedings pending before the Alipore Court, which passed an order stating that under Section 34 of the Arbitration Act the place of jurisdiction is where the arbitration award was passed or where the seat of arbitration was agreed to by the parties. Accordingly, it was held that courts of New Delhi will have jurisdiction over the Section 34 Petition. In appeal, a larger bench of the Calcutta High Court reversed the previous decision and set aside the award. The appellant then approached the Supreme Court under Article 136 of the Constitution.
Supreme Court’s decision
The Supreme Court was required to decide whether the award could be set aside based on the respondent’s objection that the place and consolidation of arbitration(s) was inconsistent with the parties’ agreement(s). To this end, the Court also had to decide if the parties’ right to object to the arbitration venue can be waived by the parties by their conduct, within the scope of Section 4 of the Arbitration Act.
The respondent argued that the parties’ choice of place cannot be derogated or deemed to be waived by conduct.
In Narayan Prasad Lohia vs. Nikunj Kumar Lohia and Ors (Lohia), the Supreme Court had to decide if an arbitration award can be challenged on grounds that it was passed by a two-member tribunal; even though no objection was raised during the arbitral proceedings. Section 10 of the Arbitration Act expressly disallows the parties’ right to choose an even number of arbitrators. However, based on Section 4, the Court noted that the parties have a right to challenge the tribunal’s composition in an application under Section 16 of the Act. This challenge has to be made within the time-limit set out in Section 16(2), i.e. before submission of the statement of defence. The parties are free to not raise such a challenge and proceed with the arbitration. If they fail to object, therefore, it was held that neither party can challenge the composition of the tribunal at a later stage. It will be deemed a waiver within the meaning of Section 4. Therefore, even a seemingly mandatory provision (Section 10) was held to be derogable by conduct.
Relying on Lohia, the Supreme Court noted in Quippo that the respondent could have objected to the tribunal’s venue and consolidation of disputes in an application under Section 16. However, since the respondent failed to even participate in the proceedings 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 was deemed to have waived all such objections.
Separately, the Supreme Court distinguished Quippo from Duro Felguera, since the latter involved 4 agreements providing for domestic arbitration and 2 for international arbitration; each of them having Hyderabad as the venue. Further, Duro was decided in the context of an application under Section 11(6) of the Act.
In contradiction, all four agreements in Quippo involved domestic arbitration with almost identical arbitral mechanisms. The only difference was that one of them provided for Kolkata as the venue. Interestingly, the Supreme Court also remarked that highlighted the provision for curial law in Indian arbitration under Section 20 and Court noted the specification of a ‘place of arbitration’ may have special significance in an International Commercial Arbitration, where the place of arbitration may determine which curial law would apply. However, in a domestic arbitration like Quippo, the applicable substantive and curial law would be the same.
It was held that the respondent had, by its conduct, waived all objections to the venue of arbitration and consolidation of disputes. The appeal was thus allowed.
The Supreme Court’s decision in Quippo has, rightly so, narrowed the scope of judicial intervention with an arbitral award. The apex court has also provided some much-needed clarity on the extent and conditions in which provisions of an arbitration agreement can be derogated / waived by parties. Parties would be discouraged from unduly remaining absent in arbitral proceedings.
On a separate note, in Quippo, one would notice that the arbitration clause in all four agreements provides for one of the parties to select the sole arbitrator out of the panel of CIAC/CIAA, as the case may be. Since the arbitration clause provides a unilateral right to appoint a sole arbitrator, it could have perhaps been argued that such a clause is void and unenforceable in light of the Supreme Court’s decision in Perkins Eastman v. HSCC (Perkins). Any arbitral award passed by such an arbitrator should, arguably, also be set aside. Ritvik has previously discussed the decision in Perkins here.
While the Supreme Court’s recent judgment in Central Organisation for Railway Electrification v. ECI-SPIC-SMO-MCML (JV) A Joint Venture Company makes a limited exception to the Perkins rationale where the party can choose from a panel of arbitrators, the arbitration clause in CORE can be distinguished from Quippo. Among other things, the arbitration clause in CORE involved the appointment of more than one arbitrator.
As such, it would have been interesting to see if the award in Quippo would also have been tested on the validity of the arbitration clause and unilateral appointment of a sole arbitrator.