| The Appellant and the Respondents
are family members who had disputes and differences in respect
of family business and properties. They agreed on 29/9/1996
to have their disputes and differences resolved through two
persons. The parties made their respective claims before these
two persons. All parties participated in the proceedings.
On 6/10/1996 an award was passed by the said two persons.
The 1st and 2nd Respondents challenged the award on the ground
that the arbitration was by two arbitrators whereas under
the Act of 1996 there cannot be an even number of arbitrators.
A Single Judge of the Kolkata High Court set aside the award
dt.6/10/1996. The appeal filed in the High Court was also
dismissed. Hence this appeal to the Supreme Court.
In terms of Section 16 of the Act of 1996, the Arbitral Tribunal
can rule on any objection with respect to existence or validity
of the arbitration agreement. It has been held by a Constitution
Bench of the Supreme Court in the case of Konkan Raily Corpn.Ltd.
vs. Rani Construction Pvt.Ltd. that the authority of the Arbitral
Tribunal under Section 16 is not confined to the width of
its jurisdiction but also goes to the root of its jurisdiction.
It is no longer open to contend that, under Section 16, a
party cannot challenge the composition of the Arbitral Tribunal
before the Arbitral Tribunal itself. However, such a challenge
under Section 16(2) must be taken not later the submission
of the statement of defence. Section 16(2) makes it clear
that such a challenge can be taken even though the party may
have participated in the appointment of the arbitrator and/or
may have himself appointed the arbitrator. Needless to state
that a party would be free, if it so chooses, not to raise
such a challenge. Thus 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. It is derogable because
a party is free not to object within the time prescribed in
Section 16(2). If a party chooses not to so object there will
be a deemed waiver under Section 4. Thus Section 10 has to
be read along with Section 16 and is, therefore, a derogable
provision.
The Supreme Court held that arbitration being a creature
of agreement between the parties, it would be impossible for
the legislature to cover all aspects. A reading of Section
11 would show that it only provides for appointment of arbitrators
in case where there is only one arbitrator or three arbitrators.
By agreement parties may provide for 5 or 7 arbitrators. If
they do not provide for a procedure for their appointment
or there is failure of the agreed procedure, then Section
11 does not contain any provision for such a contingency.
Can this be taken to mean that the agreement of the parties
is invalid? The answer obviously has to be in the negative.
Undoubtedly, the procedure in Section 11 will apply mutatis
mutandis apply for appointment of 5 or 7 arbitrators. Similarly,
even if parties provide for appointment of only two arbitrators,
that does not mean that the agreement becomes invalid. Under
Section 11(3) the two arbitrators should then appoint a third
arbitrator who shall act as the presiding arbitrator. However,
there is no reason why the two arbitrators cannot appoint
a third arbitrator at a later stage, i.e. if and when they
differ. This would ensure that on a difference of opinion
the arbitration proceedings are not frustrated. But if the
two arbitrators agree and give a common award there is no
frustration of the proceedings. Thus there is no waste of
time, money and expense if a party, with open eyes, agrees
to go to arbitration of two persons and then participates
in the proceedings.
An arbitral award can be challenged on limited grounds provided
under Section 34 of the act of 1996. Section 34(2) (a)(v)
only applies if “the composition of the Arbitral Tribunal
or the arbitral procedure was not in accordance with the agreement
of the parties”. Thus if the composition of the Arbitral
Tribunal or the arbitral procedure is in accordance with agreement
of the parties, there can be no challenge under the provision.
Even in a case where the composition of the Arbitral Tribunal
or the arbitral procedure is not in accordance with the agreement
of the parties the right to challenge the award is restricted.
The challenge can only be provided when the agreement of the
parties is in conflict with a provision of Part I of the Act
of 1996 from which the parties cannot derogate. Section 34
does not permit challenge to an award merely on the ground
that the composition of the Arbitral Tribunal was in conflict
with the provisions of Part I. This also indicates that Section
10 is a derogable provision.
The judgements of the learned Single Judge and the Division
Bench of Kolkata High Court were set aside.
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