Section 4 of
the Arbitration
and Conciliation Act, 1996 (“Arbitration Act”) enumerates the
conditions which, if satisfied, would subject a party (to arbitration
agreement) to waive his right to object.
The provision, which corresponds to Article 4 of UNCITRAL
Model Law on International Commercial Arbitration
(1985) (“Model Law”), can be read as follows:
“4.
Waiver of right to object.- A
party who knows that-
(a) any provision of this
Part from which the parties may derogate, or
(b) 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 or, if a time limit is provided for
stating that objection, within that period of time, shall be deemed to have
waived his right to so object”
A
bare reading of the provision would indicate that a party, who ‘knowingly’
neglects the derogable provision(s) of Arbitration Act or the term(s) of
arbitration agreement, cannot later plead their non-compliance. For example,
objection(s), if there be any, to the High Court’s order of appointing an
arbitrator should be made prior to the
first arbitration hearing.[1]
The participation in arbitration hearing, pursuant to appointment order,
would lead the party to waive his right to object it. Before I discuss the
provision further, I want to highlight the following questions:
1) What
does the provision signify when it refers to the knowledge of a party?
What factors would determine such knowledge? Please note that there is a
difference between ‘know’ and ‘ought to have known’. While the
draft article 4 of Model Law contained the latter term, finally enacted provision
did not have it.
2) What
does the phrase ‘without undue delay’ mean?
Indian Case Laws on Section
4 and Waiver: An Analysis
Under
section 4 of the Arbitration Act, there can be a waiver of both ‘derogatory’
provisions and of any ‘requirement’ under arbitration agreement. The concept of
"waiver", so defined under the Arbitration Act, is applicable in a
situation where there is any vagueness
in the contract between the parties;[2] but,
what does one mean by the term ‘waiver’? Relying on Halsbury’s Laws of England, 4th
Edn., Vol. 16, para 1471, the Supreme Court of India (“Supreme Court”), in Ramdev Food Products (P) Ltd. v.
Arvindbhai Rambhai Patel,
(2006) 8 SCC 726, quoted the explanation of term ‘waiver’ as
follows:
“1471. Waiver is the
abandonment of a right in such a way that the other party is entitled to plead
the abandonment by way of confession and avoidance if the right is thereafter
asserted, and is either express or implied from conduct. … A person who is
entitled to rely on a stipulation, existing for his benefit alone, in a contract(arbitration agreement) or of a statutory
provision(Part I, Arbitration Act),
may waive it, and allow the contract or transaction to proceed as though the
stipulation or provision did not exist. Waiver of this kind depends upon consent,
and the fact that the other party has acted on it is sufficient
consideration...............”
From
above, it would become clear that waiver is consensual in nature and is of a benefit
enjoyed by the party. Delhi High Court, in S.N.
Malhotra and Sons v. Airport Authority of India and Ors, 2008 (2)
ARBLR 76 (Delhi), has stipulated four conditions for the application of section
4:
(i)
Non-compliance of a provision of the statute
from which the parties may derogate or non-compliance with any requirement
under the arbitration agreement.;
(ii)
Knowledge
of such non-compliance by the opposite party,[3]
(iii)
Proceeding with the arbitration by the party
who has knowledge without stating his objection, and
(iv)
Stating of objection without undue delay or
if a time limit is provided for stating that objection.[4]
Though
the case had emphasised the importance of ‘knowledge’, there was no detailed
discussion on it. The element of ‘knowledge’ is important because waiver arises
out of consent or acquiescence and therefore "must be an intentional act with knowledge".[5]
Being
a question of fact,[6]
or sometimes a mixed question of fact and law,[7] waiver depends on the facts and circumstances
of each case. As a result, no plea of waiver can be allowed unless it is
pleaded and a factual foundation for it is laid.[8] In
Pulin Behari Lal v. Mahadeb Dutta,
the Supreme Court was of the opinion that for waiver of any provisions of the
statute, it is necessary to prove that there was conscious relinquishment of the advantage of such provisions
of the statute.[9]
According
to the Delhi High Court, a plain reading of the provision would disclose that
waiver under section 4 has reference to a situation prior to the making of an
award.[10]
To substantiate this, court had referred to the phrase 'and yet proceeds with arbitration without stating his
objection'. No doubt, when a party proceeds with arbitration, there would
be an assumption that arbitration is in progress and award has not been made;
else, how will the party proceed with arbitration?
A. Whether
mandatory provisions can be waived?
The
objective behind section 4 is to ensure that a party, who willingly does
an act, cannot later use it for an objection. Since these are only ‘derogatory’
provision(s) which can be waived, a ‘non-derogatory’ provision may not be
waived. An interesting case on this point is Dodsal (P) Ltd. v. Delhi Electric Supply
Undertaking, (1996) 2 SCC 576. In this case, Delhi
Electric Supply Undertaking (Respondent), having participated in arbitration
proceedings as also appointing an arbitrator, challenged the ‘award’ on the
ground that arbitration agreement was void in view of Delhi
Municipal Corporation Act. Though the court referred this matter
to a larger bench, it made an important observation:
“............As to the question of waiver of a mandatory provision,
we may refer to a recent decision of this Court in Krishan Lal v. State of
J&K [(1994) 4 SCC 422] in which this aspect has been dealt with in paras 16
to 25. 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”. (Emphasis supplied)
A
reading of the referred case [Krishan
Lal v. State of J&K (1994) 4 SCC 422] would indicate that it was
related to the application of J & K Act. In the referred case, it was held
by the court that while considering the question whether a mandatory provision
can be waived, it should be seen whether the provision is for the benefit of
the party. If it is for benefit of the party, there can be waiver; however,
there can be no waiver if mandatory provision serves a public purpose.[11] Unlike
J & K Act, there is already a provision (section 4) on waiver under
Arbitration Act. In such a situation, will it be possible to waive a mandatory
provision under the latter Act?
When
the above matter/issue came up for consideration before a larger bench [Dodsal (P) Ltd.
v. Delhi Electric Supply Undertaking, (2001) 9 SCC 339], the
court declined to deal with it. Instead, the court directed the respondent to
pay the ‘principal amount’ (without interest) so as to meet the ends of justice
and left the issue open for consideration in some other proceedings.
The issue, which was left in Dodsal (supra), once again came up for consideration in Narayan Prasad Lohia v. Nikunj Kumar Lohia, (2002) 3 SCC 572. In this case, the issue was whether it is mandatory to have odd number of arbitrators in arbitration proceedings (section 10). In addition to this, the issue was whether the award can be subsequently challenged under section 34 (even when a party does not object to this) if the condition of odd number is not complied with? While submitting that requirement under section 10 is mandatory in nature, it was contended on behalf of the appellant(s) that the same cannot be waived under section 4 (same being a mandatory provision). Recognising that an objection to the composition of the arbitral tribunal is a matter which is derogable in nature, it was held by the court that the same can be waived under section 4 of the Arbitration Act. Section 16(2) of the Arbitration Act provides that a plea objecting to the jurisdiction of the arbitral tribunal should not be raised later than the submission of the statement of defence. If such a right is not exercised within this period, the same would be a ‘deemed waiver’ under section 4.[12]
Since
it was held by the court that the provision is
derogatory, the question whether mandatory provision(s) can be waived was
not exactly looked into. Yet another important case concerning this issue is Karnataka State Road Transport
Corporation v. M. Keshava Raju.[13]
In this case, Karnataka High Court, while explaining that the provision
(section 4) is based on general principles such as ‘estoppel’ or ‘venire contra
factum proprium’, held that certain
mandatory provisions of the Arbitration Act also provide for a grant of waiver
in the event of failure to object. According to the court, examples of such
mandatory provisions are sub-sections (2) and (3) of section 16 (challenging
the jurisdiction of arbitration).[14]Having
discussed the position of law as regards mandatory provisions let me now
discuss more issues concerning section 4.
B. Other
Important Issues
The
arbitral tribunal derives its power from the arbitration agreement; hence, it should first be made sure that the
genesis of such authority in valid in nature. From this comes a question -
whether in a case, where an inherent
defect is present in the jurisdiction of arbitration, one can take the plea
of waiver? It has been held that an
order which lacks inherent jurisdiction would be a nullity and, thus, the
procedural law of waiver or estoppel would have no application in such a
situation.[15]
In a
case before the Patna High Court, defendant, having participated in arbitration
proceedings, later challenged the award on the ground that court lacked inherent jurisdiction to appoint arbitrator. Accepting
this contention, it was held by the Patna High Court that there can be no
waiver of a right to raise objection to the jurisdictional issue which can be
raised at any stage and the court would be enjoined to determine the said
issue.[16]To
support the reasoning, High Court referred to Supreme Court’s judgment in Balvant N. Viswamitra v. Yadav Sadashiv Mule,[17]where
it was held that ‘a defect of
jurisdiction of the court goes to the root of the matter and strikes at the
very authority of the court to pass a decree or make an order’.
Interestingly in this case, court declined to refer section 4 Arbitration Act
since the applicability of the Act was itself in dispute (Court referred to
1940 Act). The case was concerned with the decision
of the court to appoint arbitral tribunal, and the same would be different from a situation where a challenge
is made to the jurisdiction (not inherent!) of the arbitral tribunal; the
latter can be waived if not objected to.[18]In
other words, while inherent lack of jurisdiction cannot be cured, a mere lack
of jurisdiction can be cured by consent or waiver.[19]
When award is not made
within ‘Stipulated Time’: Another
important issue of waiver arises where an arbitrator does not make an award in stipulated time limit. In a case where
after the conclusion of arguments and submissions, arbitrator made an award
after a considerable delay (2 years and 4 months), it was held that a mere letter acknowledging the delayed
award cannot constitute waiver.[20]Once
an award is not made within the time limit stipulated in the arbitration
agreement, a fresh agreement would be required for providing authority to the
arbitrator to declare award. But, this does not mean that party cannot waive
this right and continue with arbitration proceeding. The same would, of course,
depend on the facts and circumstances of the case. If after the expiry of time
limit to make an award, a party attends
meeting for the purpose of arbitration, it would be a strong
indication towards waiver of right to object. In such situation, nature of the
meeting(s) would be relevant and not the number of meetings.[21]
Whether a ‘Plea of Limitation’ can be waived by a
party? In Sealand
Shipping and Export Pvt. Ltd v. Kinship Services (India) Pvt. Ltd, it has been held that the Court is under obligation
to consider the plea of limitation so raised, though not pressed before the Arbitrator, under Section 34
and need to pass appropriate order accordingly in accordance with law.[22]In
fact, it was opined that irrespective of whether a party specifically raises a plea of limit or not, an arbitrator would be
under an obligation to consider the same (to avoid further complications). Contrary
to this, in Vimal G. Jain v. Vertex
Financial Services Pvt. Ltd,[23]
it was held that:
“..............Once it is clear that the point of
limitation was not raised before the learned Arbitrator, apart from the fact
that it is deemed to have been waived, the question of entertaining such point
in proceedings under Section 34 of the said Act or in an appeal arising from
the order passed therein, cannot arise.....”.
Both
the cases do not help in clarifying the law as regards plea of limitation. However,
if such a plea of limitation is not raised under both section 34 and before
arbitral tribunal, it has been held that it cannot later be raised for the
first time under section 37 (Appealable Orders) of the Arbitration Act.[24]
‘Without
Prejudice’ consent to Arbitrate: In Aurohill Global Commodities Ltd. v. Maharashtra STC Ltd., (2007) 7 SCC
120, it was held by the court that a letter cannot constitute a waiver of a
right governed by arbitration agreement. In this case, the parties had
initially agreed (in draft agreement) for arbitration to be held in London in
accordance with rules of arbitration of Great Britain. Later, the petitioner
proposed an arbitration which would be governed by the (Indian) Arbitration Act
for the purposes of both procedural and substantive law. To this request, the
respondent replied through a letter wherein it stated that without prejudice to its contention that no contract exists, it concur in principle for the arbitration to be governed by Arbitration Act. It
was held by the court that there is no waiver of right. In doing so, the court
emphasises on two points: (i) The respondent agreed only in principle, and (ii) It was without prejudice concurrence.[25]
[For another example of ‘without
prejudice’ consent to arbitration, see
Enercon (India) Ltd. & Ors v.
Enercon GMBH & Anr. ¶ 19, Civil Appeal No. 2086 OF 2014]
Having
considered the applicability of section 4 in above situations let me now deal
with waiver of some specific provisions of Arbitration Act. Section 9 of
Arbitration Act entitles party to file an application for interim measures.
But, it should be remembered that mere filing of an application under Section 9
of the Act by any of the parties does not operate waiver or estoppel from
invoking the arbitral proceedings.[26]It
is because relief sought by the party under the provision is in the form of
interim injunction or such interim measure of protection as may appear to the
Court to be just and convenient.
Section
24(3) of the Arbitration Act provides right to a party to procure documents
submitted before the arbitral tribunal (by other party). It has been that merely
because a party, by agreement, confers summary powers on arbitrator and
absolves him of the necessity of giving the reasons in his award, it cannot be
said that the Appellants had waived their right under Section 24(3) of the Act.[27]
Another
important provision section 8 of the
Arbitration Act which, though provides for the reference to arbitration
where there is an arbitration agreement, also provides for time before which
application should be made. If an application for reference to arbitration is
not made within such time (first statement on the substance of the dispute), the
right will be waived. I have discussed this provision in another blog post. [See: Reference to Arbitration under Section
8, Arbitration and Conciliation Act, 1996]
Model Law, Arbitration Rules
and Section 4: A Comparison
As stated
earlier, section 4 of the Arbitration corresponds to Article 4 of Model Law;
hence, a comparison between the two provisions is certainly called for. The 2012
case digest on Model Law, as compiled by UNCITRAL, provides some
guidance on the interpretation of Article 4, Model Law. As mentioned in this
document, a German
court has interpreted the phrase ‘without undue delay’ to mean that a party must state its objection either at the next scheduled oral hearing or,
if no such hearing is scheduled, in an immediate written submission. Another
German court has held that objection to the infringement
of due process must be raised at latest with the closing plea.
Apart
from explaining that waiver of right to arbitrate should be unequivocal, the
case digest on Model Law also describes that the question, as to whether or not
there has been a waiver, should be decided by the arbitral tribunal
and not by the court (Hong Kong court decision: Attorney-General v. Vianini Lavori Spa).
The composite
draft text of model law on international commercial arbitration
contained a language (Article 4) which was different from the Model Law (1985).
In the former document, the provision started as ‘A party who knows [or ought
to have known]......’. This deviation in the language would have
meant something; was it that much importance was given to party’s ‘knowledge’ while
determining waiver? This can be a possible reason because when one says that a
party ‘ought to have known’
something, it means that party should have taken reasonable steps to identify
the rights which can be waived. When such a phrase is removed, what can be the
possible interpretation of party’s knowledge? This is a question which needs to
be answered (I will try to exclusively discuss this point in another post).
There
are several documents which contain provision(s) corresponding to Article 4,
Model Law. Article 32 of UNCITRAL Arbitration Rules (as revised in 2010), which
refers to waiver of right to object, is not very similar to Article 4 and is
differently worded. Unlike Article 4 of Model Law, it requires a party to act ‘promptly’. Further, Article 32 of
UNCITRAL Arbitration Rules does not mention about the ‘knowledge’ of a party;
instead, it provides that waiver of right to object can be excused where the
party can show that its failure to object
was justified. Before amendment in 2010, language of waiver provision
(Article 30) in UNCITRAL
Arbitration Rules (1976) was similar to that of Article 4,
Model Law. Contrary to this, 2006 amendments to Model Law have not resulted in alteration
in the language of Article 4.
Other
arbitration rules which correspond to Article 4, Model Law are: Article
39, ICC
Rules of Arbitration (in force since 2012); Article 32.1, LICA
Arbitration Rules (effective since 1998); Article 25, International
Arbitration Rules, International Centre for Dispute Resolution; Article
27, ICSID
Arbitration Rules.
As
can be seen from the above discussion, there are a number of (Indian) cases
dealing with the concept underlying section 4 of the Arbitration Act. However,
some more clarification is required, especially in relation to the ‘knowledge’
of the party.
[1] See BSNL v. Motorola
India (P) Ltd, (2009) 2 SCC 337
[2] Teltech Instrumentation Pvt. Ltd
v. Bharat Petroleum Corporation Ltd., 2012(2)ARBLR471(Bom)
[3] Also see Associated Hotels of India Ltd. v. S.B. Sardar Ranjit Singh,
(1968) 2 SCR 548: AIR 1968 SC 933
[4]Also see Gupta Rice Mill (P) Ltd. v.
The Punjab State Co-operative Supply and Marketing Federation Ltd. and Anr.,
(2011) 161 PLR 626
[5] IVRCL Infrastructures &
Projects Limited v. M/s. Alandur Municipal Corporation Alandur, Chennai,
MANU/TN/4302/2011
[6] Joginder Singh Sodhi v. Amar Kaur,
(2005) 1 SCC 31, 39; Pulin Behari Lal v. Mahadeb Dutta, (1993) 1 SCC
629, 634
[7] Govt. of India v. Sqn. Leader A.S.
Savant, 1995 Supp (3) SCC 555, 556
[8] Motilal Padampat Sugar Mills Co. Ltd. v. State of U.P., (1979) 2 SCC 409; See also Assam State
Electricity Board and Ors. v. Shanti Conductors Pvt. Ltd. and Anr,
MANU/GH/0114/2002 (In this case, the court referred to Seervai’s Treatise on
Constitutional Law and stated that a statutory
right ca always be waived); IRCON
International Ltd v. National Building Construction Corporation Limited,
155(2008)DLT2226 (no right can be waived where public policy is involved); Centrotrade
Minerals and Metals Inc. v. Hindustan Copper Ltd.,
(2005)2CALLT657(HC)
[9] Pulin Behari Lal v. Mahadeb Dutta,
(1993) 1 SCC 629, 634
[10] Apparel Export Promotion Council v. Shri Prabhati Patni,
Proprietor Comfort Furnishers and Anr.,
2005 (3) ARBLR 518 (Delhi)
[11] See also Centrotrade Minerals
and Metals Inc. v. Hindustan Copper Ltd., (2005)2CALLT657(HC) (The court held that agreement to
waive his statutory right cannot be said to be illegal or against any public
policy of the country
[12] Also
see Krishna Bhagya
Jala Nigam Limited and Anr. v. G. Harischandra Reddy and Anr.,
2005(2)KarLJ409; Rail India Technical and Economic Services Limited v. Ravi
Constructions and Anr., 2002(1)KarLJ419 (Not objecting on the ground or error of procedure in
arbitrator’s appointment would lead to waiver); S.N. Malhotra and Sons v.
Airport Authority of India and Ors,
2008(2)ARBLR76(Delhi); Union of India (UOI) v. Maa Agency and Anr., 2003(2)ARBLR402(Bom); Shree Subhlaxmi Fabrics
(P) Ltd. v. Chand Mal Baradia, (2005)
10 SCC 704, ¶ 9 (‘Deeming Nature’ of
section 4 has been discussed)
[13]Karnataka
State Road Transport Corporation and Anr. v. M. Keshava Raju, AIR2004Kant109 ( The court focused on waiver of
‘non-mandatory’ provisions; however, no right can be waived where public
interest or public policy is involved)
[14] See also Vinay Bubna v. Yogesh Mehta & others,
1998(4)BomCR849 (mandatory provision cannot be waived)
[15] Bihar State Mineral Development
Corpn. v. Encon Builders (I) (P) Ltd., (2003) 7 SCC 418, 426
[16] Bhagwan Singh v. Managing Director,
Central Warehousing Corporation and Ors, 2013 (1) PLJR 811
[17] Balvant N. Viswamitra v. Yadav
Sadashiv Mule, (2004) 8 SCC 706, 712
[18] Central Warehousing Corporation
represented herein by its Regional Manager v. National Lorry Transport and Shri
Rajkumar, Sole Arbitrator (O.P. No. 650 of 2004), MANU/TN/0527/2009
[19] Hira Lal Patni v. Kali Nath,
(1962) 2 SCR 747:AIR 1962 SC 199; State of Karnataka and Others v. B.
Krishna Bhat and Others, 2001(2)KarLJ1; Smt. Veena & Ors v. Seth
Industries Limited, 2011(2)MhLj226
[20] Bharat Oman Refineries Ltd v. M/s. Mantech Consultants, 2012(2)ARBLR482(Bom); Also see Jayesh H. Pandya and Anr. v. Subhtex India
Ltd. and Ors, 2008(5)MhLj749 (In this case, court concluded that the party
had waived his right); Oil India Limited v. Essar Oil Limited,
2012(3)ARBLR220(Delhi)
[21] Mascon Multiservices and
Consultants Pvt. Ltd. v. Bharat Oman Refineries Ltd. and Anr.,
2008(6)BomCR611
[22] Sealand Shipping and Export Pvt.
Ltd v. Kinship Services (India) Pvt. Ltd, 2011(7)ALLMR19
[23] Vimal G. Jain v. Vertex Financial
Services Pvt. Ltd, 2007(4)ARBLR18 (Bom),
[24] The State of Maharashtra v. M/s.
Ashoka Buildcon Limited, MANU/MH/0310/2013
[25] Also see Superintendent (Tech. I) Central Excise, I.D.D.
Jabalpur and Ors. v. Pratap Rai, (1978)3SCC113 (Meaning of the term
‘without prejudice’ has been explained)
[26] Bharti
Televentures Limited v. DSS Enterprises Private Limited & Others,
MANU/DE/0600/2001
[27] Mrs. Pushpa P. Mulchandani and
Ors. v. Admiral, Radhakrishin Tahiliani (Retd.) and Ors., MANU/MH/1432/2007
No comments :
Post a Comment