2002 (2) TMI 1242 - SC - Companies Law

Whether section 10 is a non-derogable provision? Held that - Unable to accept Mr. Venugopal s argument that, as a matter of public policy, section 10 should be held to be non-derogable. Even though the said Act is now an integrated law on the subject of arbitration, it cannot and does not provide for all contingencies. An arbitration being a creature of agreement between the parties, it would be impossible for the Legislature to cover all aspects. Just by way of an example, section 10 permits the parties to determine the number of arbitrators, provided that such number is not an even number. 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, we are unable to accept the submission that section 10 is a non-derogable provision.

Summary

Issues Involved:
1. Whether the arbitration agreement appointing an even number of arbitrators is valid under the Arbitration and Conciliation Act, 1996.
2. Whether a mandatory provision of the Arbitration and Conciliation Act, 1996, can be waived by the parties.
3. Whether the composition of the Arbitral Tribunal can be challenged under Section 16 of the Arbitration and Conciliation Act, 1996.
4. Whether the arbitral award can be set aside under Section 34 of the Arbitration and Conciliation Act, 1996, due to the composition of the Arbitral Tribunal.

Issue-wise Detailed Analysis:

1. Validity of Arbitration Agreement with Even Number of Arbitrators:
The dispute arose from an arbitration agreement involving two arbitrators, which is contrary to Section 10 of the Arbitration and Conciliation Act, 1996, stating that the number of arbitrators shall not be an even number. The respondents contended that the award was unenforceable and not binding due to this non-compliance.

2. Waiver of Mandatory Provisions:
The core issue was whether the mandatory provision of Section 10 could be waived by the parties. The court noted that Section 4 of the Act provides a waiver mechanism if a party proceeds with arbitration without timely objection. The court examined whether Section 10, which prescribes the number of arbitrators, is a non-derogable provision, meaning it cannot be waived.

3. Challenge to Composition of Arbitral Tribunal under Section 16:
The court referred to Section 16, which allows the Arbitral Tribunal to rule on its own jurisdiction, including objections to its composition. The court held that objections to the composition must be raised before the Arbitral Tribunal not later than the submission of the statement of defense, as per Section 16(2). The court emphasized that Section 16 covers challenges to the composition of the Arbitral Tribunal, and failure to raise such objections timely results in a waiver under Section 4.

4. Setting Aside Arbitral Award under Section 34:
The court analyzed Section 34, which permits setting aside an award if the composition of the Arbitral Tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement conflicts with a non-derogable provision of the Act. The court concluded that as long as the composition or procedure is in accordance with the parties' agreement, the award cannot be challenged merely because it conflicts with Section 10. The court clarified that Section 10 is a derogable provision, and objections must be raised as per the procedure laid out in Section 16.

Conclusion:
The court held that the respondents, having not raised any objection to the composition of the Arbitral Tribunal within the prescribed time, must be deemed to have waived their right to object. Consequently, the judgments of the learned Single Judge and the Division Bench were set aside. The appeal was directed to be placed before a Bench of two Judges for consideration of other aspects raised.