2014 (2) TMI 1423 - HC - Indian Laws

Validity of Arbitral Award - ex-parte award - respondents had failed to appear in the arbitration proceedings - Section 16 of Arbitration Conciliation Act, 1996 - HELD THAT - The court below has distinguished this judgment on the ground that in the present case the respondents did not appear before the arbitrator resulting in an ex-parte Award and therefore the Supreme Court judgment in the case of Narayan Prasad Lohia 2002 (2) TMI 1242 - SUPREME COURT is not applicable. There cannot be a more perverse reading of the ratio of the Supreme Court judgment by the court below in the case of Narayan Prasad Lohia inasmuch as whether the Award is ex-parte or contested. Section 16 of the Act comes into play as also the ratio laid down in para. 16 of the judgment i.e. it is not open to a person who does not contest the arbitration proceedings by remaining ex-parte to raise objections under Section 34 of the Act with respect to jurisdiction because by failing to raise objection as to jurisdiction before the arbitrator objection as to jurisdiction is deemed to be waived. Trial court is completely unjustified in distinguishing the direct ratio of the judgment of the Supreme Court more so when the basis of distinguishing the ratio is on a wholly unacceptable basis because a person cannot take advantage of his own wrong in failing to appear before the arbitrator and not objecting to the jurisdiction and raising the objection for the first time in a petition under Section 34 challenging the existence of an arbitration agreement. In view of the above, appeal is allowed.

Summary

Issues:
1. Appeal under Section 37 of the Arbitration & Conciliation Act, 1996 against the order setting aside the Award.
2. Failure of respondents to appear in arbitration proceedings and challenge jurisdiction.
3. Interpretation of Supreme Court judgment on objection to jurisdiction under Section 16 of the Act.
4. Justification of setting aside the impugned order and upholding the Award.

Issue 1: Appeal under Section 37 of the Arbitration & Conciliation Act, 1996 against the order setting aside the Award.

The appeal was filed against the court's order dated 26.11.2011, which accepted the objections of the respondents under Section 34 of the Act and set aside the Award dated 28.3.2003. The court found that the clauses in the bills did not amount to an arbitration agreement due to the absence of signatures. Despite the respondents' failure to appear in the arbitration proceedings and challenge the jurisdiction under Section 16 of the Act, an ex-parte Award was passed in favor of the claimant. The High Court found the trial court's handling of the matter surprising and proceeded to decide the appeal.

Issue 2: Failure of respondents to appear in arbitration proceedings and challenge jurisdiction.

The High Court noted the respondents' refusal to appear in the arbitration proceedings, resulting in an ex-parte Award against them. The court emphasized that objections to jurisdiction must be raised before the arbitrator under Section 16 of the Act. Citing the Supreme Court judgment in Narayan Prasad Lohia case, the court highlighted that failure to contest the arbitration proceedings and raise objections to jurisdiction before the arbitrator results in a deemed waiver of such objections. Therefore, the respondents were estopped from challenging the jurisdiction of the arbitrator due to their non-appearance and failure to object during the arbitration proceedings.

Issue 3: Interpretation of Supreme Court judgment on objection to jurisdiction under Section 16 of the Act.

The High Court criticized the trial court's misinterpretation of the Supreme Court judgment in the Narayan Prasad Lohia case. The trial court wrongly distinguished the applicability of the judgment based on the ex-parte nature of the Award. The High Court clarified that whether the Award is ex-parte or contested, Section 16 of the Act mandates that objections to jurisdiction must be raised before the arbitrator. The court emphasized that a party cannot benefit from its failure to participate in the arbitration proceedings by later challenging the jurisdiction in a petition under Section 34. The High Court held that the trial court's reasoning for distinguishing the Supreme Court judgment was unjustified and set aside the impugned order.

Issue 4: Justification of setting aside the impugned order and upholding the Award.

In light of the above analysis, the High Court allowed the appeal, set aside the impugned order dated 26.11.2011, and held that the respondents had waived their objections to jurisdiction by not appearing in the arbitration proceedings. Consequently, the Award dated 28.3.2003 was deemed applicable and enforceable. The High Court directed that parties bear their own costs in the matter.

This detailed analysis of the judgment highlights the key issues involved and the High Court's thorough examination and interpretation of the legal principles governing arbitration proceedings and objections to jurisdiction under the Arbitration & Conciliation Act, 1996.