Judgment:
S.J. Vazifdar, J.
1. The petitioner has sought a declaration that as per the provisions of the arbitration agreement dated 13.12.1996, the mandate of the learned arbitrator, Respondent No. 2 stood terminated as a result of efflux of time and that the learned arbitrator had become functus officio.
2. Respondent No. 2 is the arbitrator and therefore only a formal party. The reference in this judgement to the Respondent will therefore be to Respondent No. 1.
3. That the time for making the award stipulated in the arbitration agreement has expired is admitted. The question is whether the petitioner had waived the condition stipulating the time within which the award was to be made. The determination of this question in turn raises the question as to when the arbitrator entered upon the reference for that is the starting point mentioned in the agreement for computing the period within which the award is to be made.
Mr. Bharucha, the learned senior counsel appearing on behalf of the Respondent submitted that the arbitrator entered upon the reference on 19.4.2002. In the alternative he submitted that the arbitrator entered upon the reference on 28.5.2002. In the further alternative he submitted that the arbitrator entered upon the reference on 28.6.2002. Mr. Kamdar, the learned senior counsel appearing on behalf of the petitioner, on the other hand submitted that the arbitrator entered upon the reference on 16.10.2002. As I will demonstrate, irrespective of when the arbitrator is deemed to have entered upon the reference, the petitioner had waived the stipulation in the arbitration agreement as to the time within which the award is to be made. However as the matter has been argued on the basis of all these dates and submissions have been made on the basis of the arbitrator having entered upon the reference on each of these dates I will deal with the same.
4. The Respondent invited tenders for certain work. The petitioner was the successful tenderer. A work order dated 4.10.1996 was issued in favour of the petitioner. A formal agreement dated 13.12.1996 was entered into between the petitioner and the Respondent, Clause 91 (b) whereof reads thus:
The award shall be made in writing and published by the Arbitrator within two years after entering upon the reference or within such extended time not exceeding further twelve months as the Sole Arbitrator shall by a writing under his own hands appoint. The parties hereto shall be deemed to have irrevocably given their consent to the Arbitrator to make and publish the award within the period referred to hereinabove and shall not be entitled to raise any objection or protest thereto under any circumstances whatsoever.
5. Disputes and differences having arisen between the parties the petitioner requested the Respondent to appoint an arbitrator. According to the petitioner the Respondent failed to do so in terms of the arbitration agreement. The petitioner therefore on 22.6.2000 filed Application No. 75 of 2001 under Section 11 of the Arbitration and Conciliation Act, 1996. Thereafter Respondent No. 1 appointed its executive director, Respondent No. 2 as an arbitrator. According to the petitioner the appointment was contrary to law. By an order dated 23.2.2001 in the above application Respondent No. 2 was appointed. With the petitioner's grievance against this order I am not presently concerned.
6. At the first meeting before the arbitrator on 22.1.2002 formal directions regarding pleadings were passed.
At the second meeting held on 19.4.2002 the petitioner moved an application under Section 16 of the said Act contending that the appointment of the sole arbitrator was bad in law and that therefore he could not continue the arbitration proceedings. It was the petitioner's contention that the respondent not having appointed the arbitrator within thirty days of the request for the appointment of the arbitrator the subsequent appointment of Respondent No. 2 is bad in law and that Respondent No. 2 has no jurisdiction to proceed with the reference.
That application was heard on 28.5.2002 and was decided against the petitioner by the arbitrator by an order dated 28.6.2002.
7. According to Mr. Bharucha, the arbitrator entered upon the reference, within the meaning of that expression in Clause 91(b) on 19.4.2002, alternatively on 28.5.2002 and in any event on 28.6.2002. Irrespective of which of these three dates is taken into consideration it would make no difference to the Respondents case based on waiver as the event of waiver relied upon by them occured on 13.8.2002 i.e. more than three years after each of these dates.
8. Thereafter issues were settled on 16.10.2002 by the arbitrator and the proceedings continued. According to Mr. Kamdar, the arbitrator entered upon the reference, within the meaning of that expression in Clause 91(b) on 16.10.2002.
9. By an application dated 10.3.2006 filed before the arbitrator the petitioner contended that the mandate of the arbitrator had come to an end and therefore applied for the termination of the arbitration proceedings. The learned arbitrator by an undated order rejected the contention. The arbitrator based his decision upon Section 21 of the Arbitration and Conciliation Act, 1996 which reads as under:
21. Commencement of arbitral proceedings. -Unless otherwise agreed by the parties, the arbitral proceedings in respect of a particular dispute commence on the date on which a request for that dispute to be referred to arbitration is received by the respondent.
10. Mr Bharucha did not press the contention that the present application before me is not maintainable on the ground that this order of the arbitrator can only be challenged, if necessary, from a challenge to the award itself.
11. While I agree with the decision of the learned arbitrator in rejecting the application I do so on a different basis altogether. It is pertinent to note that the expression in the arbitration agreement is 'entering upon the reference' and not 'commencement of arbitral proceedings '. A Division Bench of this Court, to which I was a party, held in Maganlal D. Santokchand v. Narpatraj B. Mehta : 2006(5)BomCR464 as under:
12. It is important to note firstly that we are not concerned with the interpretation of a statutory provision containing the expression 'date of entering upon the reference'. We are concerned here with the real intention of the parties qua Clause 6 of the minutes of the order. What did the parties have in mind when they agreed to Clause 6 - In other words, what was the date that the parties contemplated as falling within the expression 'date of entering upon the reference'. The reliance upon the judgment in M/s.Jolly Steel Industries, is only an indication of how the parties may have construed the term.
14. The Appellant has not suggested anything regarding the intention of the parties. The burden was on the Appellant to do so.
12. In the present case, the petitioner has not suggested anything regarding the intention of the parties in this regard when the agreement was entered into. The petitioner has failed to discharge the burden of establishing what the parties intended when they used the expression 'entering the upon the reference' in the arbitration agreement.
13. In any event even if the date of the arbitrator entering upon the reference is to be determined in accordance with Clause 3 of Schedule I of the 1940 Act the Petitioners case is not well founded.
14. At the first meeting before the arbitrator on 22.1.2002 formal directions regarding pleadings were passed. At the second meeting held on 19.4.2002 the petitioner moved an application under Section 16 of the said Act contending that the appointment of the sole arbitrator was bad in law and that therefore he could not continue the arbitration proceedings. The arbitrator noted in the minutes of the said meeting that as per law he had to decide whether the contention was valid or not and observed that accordingly the further course of action would be decided.
15. Mr. Bharucha submitted that the arbitrator had entered upon the reference on this date. There is however nothing to indicate that the learned arbitrator actually applied his mind on this date. The minutes of this meeting merely state that the contention had been raised by the petitioner. The mere reference to the fact of a contention having been raised by a party does not ipso facto indicate any application of mind on the part of the arbitrator. If however the arbitrator had applied his mind no doubt he must be deemed to have entered upon the reference, within the meaning of that expression, irrespective of the extent to which the arbitrator had applied his mind. The extent of application of mind would be irrelevant in this regard.
16. However as noted above, for the purpose of determining the question of waiver it matters not whether the arbitrator is deemed to have entered upon the reference on 19.4.2002 or 28.5.2002. The third meeting of the arbitrator was held on 28.5.2002 when the petitioner's application was argued. The arbitrator reserved his decision. Thus on this date the learned arbitrator definitely had applied his mind to the dispute in question and therefore must be deemed to have entered upon reference on that date. This however is subject to Mr Kamdar's submission that in deciding a question as to jurisdiction the arbitrator does not apply his mind to the merits of the dispute between the parties and therefore cannot be said to have entered upon the reference - an aspect I will now deal with.
17. The expression entering on the reference is to be found in Clause 3 of the first schedule to the Arbitration Act 1940. A Division Bench of this Court in Jolly Steel Industries Pvt. Ltd. v. Union of India and Anr. : AIR1979Bom214 held as under:
13. Thus, the arbitration proceeding consists of two stages. One such stage consists of merely ministerial acts while the second stage consists of effective adjudicative acts in furtherance of the work of arbitration, namely of proceedings to decide controversies in between the parties, whether arising out of the main dispute or procedural aspects in the disposal thereof. The arbitrator cannot be said to have entered on the reference unless the second stage can be said to have been reached someway of the other. Looked at from this point of view it is impossible to hold that the arbitrator had entered on reference in 17-11-1971 when nothing had happened on that date beyond the arbitrator issuing notices to the parties to file their statement of claims. The re'sume' of events in this case indicates that no effective step was taken by the arbitrator, till the hearing of the dispute commenced on 21-2-1972. Each one of the earlier stages covered merely some or the other of the ministerial acts such as issuing of notices, acceptance of statement of claims and adjourning the case to suit the convenience of the parties. 21st February 1972 must beheld, on the facts and in the circumstances of the case, to be the date on which the arbitrator had entered on reference. The award dated 15-5-1972 was within four months prescribed under cl. 3 of Sch. I of the Arbitration Act. In this view of the matter, the finding recorded by the learned Judge on this point is liable to be set aside.
A consideration by the arbitrator and a decision by him on the question as to whether or not his appointment is valid and legal and accordingly whether or not he therefore is entitled to act as an arbitrator/his appointment is valid and legal cannot be said to be a ministerial act. It is most certainly an adjudicative act. Such questions may not pertain to the facts in issue qua the agreement, the implementation thereof and the other disputes between the parties. But questions as to jurisdiction and the validity of the appointment of arbitrators are also controversies between the parties arising the out of the main dispute or the procedural aspects in the disposal thereof. The ratio of the Division Bench does not limit the adjudicative acts only to those which relate to questions other than those pertaining to jurisdiction and the validity of the appointment of arbitrators.
18. In the circumstances the arbitrator must be deemed to have entered upon reference, within the meaning of that expression even under the 1940 Act when he first applied his mind to the petitioners application dated 19.4.2002. He did this on 28.5.2002. Thus in my view the arbitrator entered upon reference on 28.5.2002.
19. Mr. Kamdar submitted that such a view would cause enormous hardship and unfairness to parties where the jurisdiction of the arbitrator is challenged. In such cases according to him there is a danger of parties deliberately raising question as to jurisdiction and prolonging the matter beyond the time stipulated in the agreement if any. I do not agree. I do not share the apprehension expressed by Mr Kamdar.
20. When parties raise questions as to jurisdiction it would be legitimate to draw an inference that they themselves have given a go by to the stipulation as to the time within which the award is to be made. When parties stipulate a time for making an award commencing from the date on which the arbitrator enters upon reference it would be legitimate to presume that they contemplated that the stipulation as to time would operate only where disputes other than those regarding jurisdiction including the authority of the arbitrator are raised. For when parties enter into an arbitration agreement it would be reasonable to presume that they do so on the basis that the arbitrator would have jurisdiction and be competent to adjudicate upon the merits of the disputes between themselves. Parties do not enter into arbitration agreements on the basis that the arbitrators may not have jurisdiction to decide the disputes which may arise and which they agree must be arbitrated upon. Thus, it would be safe and proper to assume that parties that raise questions as to jurisdiction have given a go by to the stipulation as to time within which an award is to be made in the agreement.
21. Assuming then that the arbitrator entered upon the reference on 28.5.2002 the time to make the award expired on 28.5.2005. The facts however establish beyond any doubt that the parties waived the stipulation as to the time within which the award is to be made in the said agreement.
22. At the 13th meeting before the arbitrator held on 16.3.2005 the next two meetings were scheduled on 8.4.2005 and 9.4.2005. However as recorded by a letter dated 11.4.2005 addressed by the arbitrator to the parties, both the parties were telephonically informed that the meeting scheduled on those dates could not be held and that the next meetings were scheduled to be held on 25.5.2005 and 26.5.2005. By this time the petitioner was obviously aware that the award could not have been made by 28.5.2005 as admittedly at this stage the Respondent had not even completed its reply. Yet, there was no objection to the same by the petitioner. Further, the fourteenth meeting was held before the arbitrator on 13.8.2005. At this meeting the Respondent completed its oral arguments. As recorded in the minutes of the meeting the Respondent was directed to submit its written submissions by 13.9.2005. The date of the next meeting was to be fixed by mutual agreement between the petitioner and the Respondent after the submission of the written arguments by the Respondent. There was no objection to any of this by the petitioner. In fact the petitioner agreed to the same. The petitioner did not contend that the time stipulated in the agreement had come to an end and that thereby the arbitrators mandate had also come to an end.
23. Mr. Kamdar however submitted that at the very next meeting held on 11.3.2006 the petitioner had raised an objection. He submitted that the fact that the petitioner had attended a solitary meeting could not constitute waiver. I do not agree.
24. It is true that if a party attends a number of meetings after the time for making the award has expired it would be a strong indication of waiver. However the strength of an indication of waiver is not necessarily directly proportional to the number of meetings attended by a party after the stipulated time for making the award. It is the nature of the meeting and the nature of the conduct of a party which is as, if not more, important.
25. What is important to note is that at the meeting held on 13.8.2005 i.e. after the period of three years had expired on 28.5.2005 the petitioner had participated in the arbitration proceedings which were not merely formal in nature. On that date the Respondent completed its oral arguments. Further the Respondent was directed to submit its written submissions by 13.9.2005. The petitioner did not object to this either. Further still it was agreed between the parties as recorded in the minutes of the 14th meeting held on 13.8.2005 that the next meeting would be fixed by mutual agreement between the petitioner and the Respondent. Thus the petitioner not only participated in a substantial and important meeting after 28.5.2005 but agreed to the arbitration proceedings continuing on merits by not having objected to the order of the arbitrator directing the Respondent s to submit the written submissions by 13.9.2005 and by agreeing to further participate in the proceedings by agreeing to fix the date for further hearings by mutual agreement with the Respondents.
26. I will now presume to be well founded Mr Kamdar's submission that the arbitrator entered upon the reference on 16.10.2002 i.e. the date on which the issues were settled by the arbitrator at the fifth meeting. In that event the mandate of the arbitrator would have come to an end on 16.10.2005. However the facts established that even thereafter the petitioner and the Respondent waived the stipulation in the arbitration agreement regarding the period of three years within which the award was to be made.
27. There is an important indication of waiver even assuming 16.10.2005 was the last date for making the award in the minutes of the meeting held on 13.8.2005 itself. It was agreed that the next meeting would be fixed by mutual agreement between the parties after the Respondent filed its written submissions on 13.9.2005. If either party dishonestly did not want the arbitration to proceed it could easily have refused to agree to the next meeting being held by 16.10.2005. It is only because the parties had agreed to waive the stipulation as to time that it was further agreed between them that the next meeting would be fixed by mutual agreement between themselves. There is no other explanation for the parties having consented before the arbitrators to fix the next meeting by mutual agreement between themselves. Nothing could be clearer to establish a case of waiver.
28. Further, as stated earlier, at the meeting held on 13.8.2005 the Respondent was directed to submit the written submissions by 13.9.2005. By a letter dated 13.9.2005 the Respondent requested for an extension of time up to 13.10.2005 to submit its written submissions. A copy of this letter was forwarded to the petitioner. The petitioner did not object to the request. The arbitrator by a letter dated 20.9.2005 agreed to the extension of time. A copy of this letter was also forwarded to the petitioner. There was no objection from the petitioner to the extension having been granted despite it being by now crystal clear to the parties that the award could never have been made by 16.10.2005.
By a further letter dated 7.10.2005 the Respondent once again requested for extension of time upto 13.11.2005 to submit the written submissions. A copy of this letter was also forwarded to the petitioner. The petitioner raised no objection to the same. The arbitrator by letter dated 10.10.2005 granted the extension. A copy of this letter was forwarded to the petitioner. Once again the petitioner did not object to the same despite the fact that by now the time to make the award had expired.
Ultimately the Respondent under cover of its letter dated 11.11.2005 forwarded its written arguments to the arbitrator as well as to the petitioner. No objection was raised by the Petitioner to the same being taken on record.
29. If the petitioner had not in fact waived the stipulation in the agreement as to the time within which the award was to be made it would have at some stage objected to all that had transpired between 13.8.2005 and 11.11.2005. There is no other explanation for this conduct.
30. The doubt if any would be removed by the fact that the arbitrator by a letter dated 22.11.2005 informed both the parties that the next arbitration meetings were scheduled to be held on 10.1.2006 and 11.1.2006. By the said letter the arbitrator further stated that in the absence of any of the parties the proceedings would be held ex-parte. The Petitioner did not object to the same on the ground that the arbitrator's mandate had come to an end.
31. By a further letter dated 28.12.2005 the arbitrator informed both the parties that the next date of the meeting would be fixed preferably in February 2006 as due to unavoidable circumstances the meeting could not be held as scheduled on 10.1.2006 and 11.1.2006. The petitioner again significantly did not reply stating that there was no question of holding any further hearings as the mandate of the arbitrator had come to an end.
32. Ultimately, by a letter dated 20.2.2006 the arbitrator fixed the meetings on 10.3.2006 and 11.3.2006. As stated above the petitioner made the application for termination of the arbitration proceedings on the ground that the mandate of the arbitrator had come to an end at the meeting held on 11.3.2006.
33. Faced with this, Mr. Kamdar submitted that there was no meeting held between 13.8.2005 and 11.3.2006 and that therefore there was no opportunity for the petitioner to make the application any time prior to 11.3.2006.
34. Firstly the above facts and correspondence to my mind clearly indicate an express waiver on the part of the petitioner regarding the mandate of the arbitrator as having come to an end by efflux of time. Secondly there is nothing that prevented the petitioner for making the said application even before the next meeting. The fact that the petitioner did so only on 11.3.2006 indicates that the same was an afterthought. The contention was taken far too late. It ought to have been taken before the petitioner and the Respondent had waived the stipulation as to the time for making the award.
35. In Shyam Telecom Ltd v. ARM 2004 (3) ALR 146 it was found that the Petitioner had waived its right to object to the continuance of the arbitration proceedings by having participated therein and not having raised the objection even after the time for making the award had expired. A learned single judge of the Delhi High Court held:
19. Mr. Rajiv Nayar in support of his contention that the petitioner will be deemed to have waived its right to object within the meaning of Section 4 of the Act, has sought support from the Supreme Court decision in the case of Narayan Prasad Lohia v. Nikunj Kumar Lohia and Ors. (SO ; Inder Sain Mittal v. Housing Board ; and a Karnataka decision in the case of K.S.R.T.C. v. M. Keshava Raju . In Narayan Prasad Lohia's case (supra), the Court considered the question of waiver of a right to object by a party in relation to the constitution of an arbitral tribunal and held that a conjoint reading of Sections 10 and 16 shows that an objection to the composition of the Arbitral Tribunal is a matter which is derogable. The Court further ruled that it is derogable because a party is free not to object within time prescribed in Section 16(2) of the Act and if a party chooses not to so object, there will be a deemed waiver under Section 4. The Court repelled the submission that Section 10 is a non-derogable provision.
20. Inder Sain Mittal's case (supra), was considered under the provisions of the 1940 Act and, therefore, is not of much help in deciding the question. In the case of K.S.R.T.C's case (supra), the Karnataka High Court considered the question of waiver more fully in relation to the right to object the jurisdiction of the Arbitrator and has held as under:
Thirdly, the appellant should be deemed to have waived his right to object to the jurisdiction of the Arbitrator to pass the impugned Award in terms of the provisions of Section 4 of the Act. Section 4 is based on general principles such as 'estoppel' or 'venire contra factum proprium'. It is intended to help the arbitral process function efficiently and in good faith. If there is non-compliance of any nonmandatory provision of Part I or of any requirement of the Arbitration agreement by a party to an Arbitration agreement of which the other party to the agreement though has the knowledge of such non-compliance but does not object without undue delay, or if a time limit is provided for stating that objection and no objection is taken within that period of time, such a party later on can neither raise objection about that non-compliance of any provision of Part I nor any requirement of the Arbitration agreement since such party shall be deemed to have waived its objection. Though, in order to apply the doctrine of waiver by invoking Section 4, the first condition is that the non-compliance must be of non-mandatory provision of Part I or of any requirement under the Arbitration agreement, certain mandatory provisions of the Act also provide for a grant of waiver in the event of failure to object. For example, Sub-sections (2) and (3) of Section 16 are one of such mandatory provisions. Section 16(2) of the Act provides that a plea that the Arbitral Tribunal does not have jurisdiction shall be raised not later than the submission of the statement of defense. Section 16(3) of the Act provides that a plea that the Arbitral Tribunal shall be raised as soon as the matter alleged to be beyond the scope of its authority is raised during the Arbitral proceedings.22. In the opinion of this Court, these arguments of the learned Counsel for the petitioner cannot be accepted ; firstly, because having regard to the totality of the facts by no stretch it can be said that the Article IV(3) of the Divestment agreement was not to the knowledge of the petitioner and, therefore, they could not object to the continuation of the proceedings after the expiry of the stipulated period. Not only that, no objection was raised about the continuation of the Arbitral proceedings but the petitioner continued to participate in substantive proceedings before the Arbitrator up till the final stage of the proceedings. In the opinion of this Court, these facts and circumstances are so glaring so as to attract the doctrine of waiver within the meaning of Section 4 of the Act. It is a settled legal position that waiver will be deemed to have taken place when a party knowing that an irregularity has been committed, did not object to the same but participated in the Arbitration proceedings without protest. Section 4 of the 1996 Act corresponds to Article IV of 'UNCITRAL Modern Law'. The principle of waiver is not new in the Arbitration law as it was so far contained in the case law and has been codified in the statute. Besides, in the opinion of the Court the right to object the continuance of the proceedings on the ground of expiry of the stipulated period is one which falls in Part-I of the Act and which is derogable. The object of providing time limit for rendering an Award by the Arbitrator is aimed at expeditious resolution of the disputes rather than to leave the disputes unsettled or inconclusive on the expiry of the stipulated period. -Thus, looking at the matter from any angle, this Court is of the opinion that having regard to the entirety of the facts and circumstances, the petitioner will be deemed to have waived its right to object about the continuation of the proceedings or alleging the termination of the mandate of the Arbitrator simply on the ground that the time prescribed under Article IV(3) of the Divestment agreement for making the Award had expired.
I am in respectful agreement with the judgment. It is applicable to the present case.
36. Finally, Mr. Kamdar submitted that the terms of Clause 90 1(b) do not permit the parties to agree to an extension of time beyond the period of three years even by consent. He based his submission on the last sentence of the clause. The argument is unfounded.
37. The second sentence of the clause correctly construed merely provides that in the event of the arbitrator extending the time by a further 12 months the parties had irrevocably given their consent to his making and publishing the award within the extended period and they would not be entitled to raise any objection or protest thereto under any circumstances whatsoever. There is nothing in the clause which even remotely indicates that the parties cannot by consent agree to waving the stipulation as to time within which the award was to be made and published.
38. In the circumstances the petition is dismissed. However to enable the petitioner to challenge this order the arbitration proceedings shall not continue for a period of eight weeks from today.