1. In this appeal under Section 37 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as `the Act, 1996'), the appellants have assailed the validity of the order dated 16.10.2006 passed by the trial Court by which the objection preferred by the appellants under Section 34 of the Act, has been rejected. The relevant facts which need mention, are stated infra.
2. The appellants invited tenders for ploughing and levelling work of the agricultural land of the farmers belonging to Scheduled Castes/Scheduled Tribes and persons living below the poverty line (BPL) under the "Swarnajayanti Grameen Rojgar Yojna"of the State Government. The tender of the respondent was accepted and an agreement was executed between the parties on 24.3.2003. Clause 11 of the agreement contained an arbitration clause, which reads as under:-
3. A dispute arose between the parties. The respondent filed an application under Section 11(6) of the Act before the trial Court, which was allowed vide order dated 1.8.2005 by which the Managing Director of the appellant-Corporation was appointed as an Arbitrator in terms of Clause 11 of the agreement. The aforesaid order attained finality. However, the Managing Director of the appellant-Corporation, who was appointed as an Arbitrator by the trial Court vide order dated 1.8.2005, delegated his authority to one R.K. Gupta, a retired officer. The parties appeared before the aforesaid Arbitrator and filed their statement of claims. The Arbitrator appointed by the Managing Director of the appellant-Corporation passed an Award on 23.1.2006 by which the claim of the respondent was decreed.
4. Being aggrieved by the aforesaid Award, the appellants filed an application under Section 34 of the Act. The Award passed by the Arbitrator was challenged on several grounds. The trial Court by an order dated 16.10.2006 dismissed the application preferred by the appellants under Section 34 of the Act. In the aforesaid factual background, the appellants have approached this Court.
5. Learned senior counsel for the appellants submitted that as per the terms and conditions of the agreement and in view of the order dated 1.8.2005 passed on the application under Section 11(6) of the Act, the Managing Director of the appellant-Corporation alone had the authority to act as an Arbitrator and the trial Court grossly erred in rejecting the objection preferred by the appellant-Corporation with regard to the authority of the Arbitrator on the ground that the appellants had not raised any objection to the authority of the Arbitrator appointed by the designated Arbitrator. It is further submitted that the Arbitrator who was nominated by the parties under the agreement and was appointed by the order of the Court had no jurisdiction to delegate his authority to Mr. R.K. Gupta and, therefore, the Award passed by the Arbitrator is per se without jurisdiction. However, aforesaid aspect of the matter has not been appreciated by the trial Court. In support of aforesaid submission, reliance has been placed on decision of the Calcutta High Court in the case of Union of India (UOI) v. Surendranath Kanungo and Anr. 2005(2) ARB. LR 106 Cal, (2005) 1 CAL. LT 457 HC, as well as decision in the case of Union of India and another v. M.P. Gupta, 2004(10) SCC 504 and in the case of Murari Lal Khandelwal v. Rajasthan State Seeds Corporation and others, AIR 2008 Raj. 108.
6. I have considered the submissions made by learned senior counsel for the appellants. Section 4 of the Act, 1996, deals waiver of right to object, which reads as under:
"4. Waiver of right to object:- A party who knows that -
(a) any provisions of this Part from which the parties 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."
Thus, from perusal of Section 4 of the Act, it is evident that any party who was aware of any requirement under the arbitration agreement has not been complied with and yet proceeds with the arbitration without stating his objection shall waive the right to raise an objection in this regard.
7. In the instant case, admittedly, under clause 11 of the agreement, the dispute between the parties has to be adjudicated by the Managing Director of the appellant Corporation. By an order dated 1.8.2005 passed by the trial Court in exercise of power under Section 11(6) of the Act, the Managing Director of the appellant-Corporation was appointed as an Arbitrator. Thus, under the order of the Court as well as in view of the agreement executed between the parties, the Managing Director of the appellant-Corporation was required to perform his duties as an Arbitrator. His authority could be terminated only in contingencies mentioned in Sections 14 and 15 of the Act. The Arbitrator could not have abdicated his duty to act as an Arbitrator.
8. Neither the appellant nor the respondent had any authority to give consent expressly or impliedly to continue with the proceeding which was initiated by an Arbitrator who had no authority in law, to do so in violation of the express provision contained in the arbitration agreement as well as the order passed by the trial Court which had attained finality, that too without abrogating the arbitration agreement. Therefore, in the fact situation of the case, the provisions of Section 4 of the Act have no application.
9. Even otherwise, it is well settled in law that in case of patent lack of jurisdiction, the jurisdiction cannot be assumed by the Arbitrator on the basis of acquiescence of parties. See: Tarapore & Co., v. State of M.P., (1994) 3 SCC 521. The Award passed by the Arbitrator has no sanctity in the eye of law. T he trial Court, therefore, grossly erred in rejecting the objection preferred by the appellants with regard to the Award of the Arbi
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trator to adjudicate the dispute between the parties, merely because the parties have not raised any objection in the proceeding before the Arbitrator. 10. In view of preceding analysis, the impugned order dated 1.8.2005 as well as the Award dated 23.1.2006 passed by the Arbitrator are hereby quashed. The Managing Director of the appellant-Corporation is directed to adjudicate the dispute between the parties and to conclude the same expeditiously, in accordance with law, preferably within a period of six months from the date of production of copy of this order before him. In the result, the appeal succeeds and is hereby allowed. Appeal Allowed.