1. The present first appeal from order has been filed by the appellant-Meerut Development Authority (in short 'MDA') against rejection of it's objections filed under Section 34 of the Arbitration & Conciliation Act, 1996 (hereinafter referred to as the 'New Act'). The award framed by the learned sole arbitrator dated 19.03.2005 has become enforceable, thus entitling the respondent - M/S Civil Engineering Corporation Ltd. through its proprietor Ms. Tripti Garg (hereinafter referred to as the 'claimant') to monies awarded by the learned arbitrator.
2. Admittedly in 1987, the MDA invited two separate tenders for construction of 62 MIG and 92 LIG houses. Two separate bids were submitted by the claimant for award of the aforesaid two works. They were accepted by MDA. Two separate contract bonds - for construction of 62 MIG and 92 LIG houses, were then executed between the parties on 17.02.1987 and 12.05.1987. The work itself was to be completed within ten months from the date of commencement. However, it remains a fact, despite repeated extensions of time granted, the work could not be completed by the claimant. Ultimately, the MDA cancelled the two contract bonds awarded to the claimant on 01.09.1989. Further, the claimant was black-listed.
3. In such background facts, relying on Clause-34, that was identical in both the contract bonds and which contained an arbitration agreement, the claimant issued a notice dated 08.05.1989 to the MDA to appoint an arbitrator under provisions of the Arbitration Act, 1940 (hereinafter referred to as the 'Old Act').
4. It is also an undisputed fact that no arbitrator came to be appointed by the Vice Chairman, MDA. According to the claimant, it therefore filed an application under Section 20 of the Old Act before the Civil Judge (Senior Division), Meerut, which came to be registered and described as Original Suit No. 904 of 1989. Admittedly, the MDA filed appearance and also it's objections, in that case. Vide order dated 04.09.2004, the said proceeding was allowed and the Additional Civil Judge (Senior Division), Meerut, directed for appointment of an arbitrator. Perusal of that order reveals, in the application filed under Section 20 of the Old Act, the claimant had sought directions to the Vice Chairman of MDA to: (i) appoint an independent arbitrator and; (ii) to restrain the MDA from awarding the remaining works to any other person. A further direction was sought to issue a commission to prepare inventory of the materials/goods.
5. The order dated 04.09.2004 also reveals that the learned Additional Civil Judge (Senior Division), Meerut directed the parties to propose names of three persons each for appointment of the sole arbitrator. It was further indicated that the arbitrator would be directed to make his award within a period of four months. Before passing the order dated 04.09.2004, the learned Additional Civil Judge (Senior Division), Meerut, appears to have framed five issues, broadly: (i) whether under the contract bonds dated 17.02.1987 and 12.05.1987, there existed any right to appoint an arbitrator; (ii) whether adequate court fee had been paid; (iii) whether the claimant was entitled to any relief; (iv) whether there were any disputes between the claimant & MDA? If yes, it's effect and; (v) whether the application filed under Section 20 was maintainable. All the issues were decided in favour of the claimant.
6. In those proceedings, no objection appears to have been raised by MDA and therefore no issue appears to have been framed as to whether, upon the enforcement of the New Act w.e.f. 25.01.1996, the proceedings instituted by the claimant under Section 20 of the Old Act, that were pending (on that date), survived. Also, it is an undisputed fact that the MDA did not challenge the order dated 04.09.2004 or the consequential order appointing the learned arbitrator, in any separate proceedings.
7. Again undisputedly, neither the MDA appointed any arbitrator during pendency of those proceedings nor any consented arbitrator came to be appointed therein, upon order dated 04.09.2004. Thus, the learned Additional Civil Judge (Senior Division) Meerut, vide his further order dated 25.10.2004 appointed Sri V.K. Tyagi, as the learned sole arbitrator.
8. Upon such order (of appointment), Sri V.K. Tyagi, the learned sole arbitrator issued notice fixing the first date in the proceedings, on 20.11.2004. Both parties then appeared before the learned Arbitrator. It may be noted here itself that even in the course of those arbitration proceedings before the learned arbitrator, no objection was raised by the MDA as to any defect of jurisdiction.
9. At the same time, perusal of the order passed under Section 34 of the New Act reveals, on 15.2.2005 (before the learned Arbitrator) the parties specifically consented to allow the arbitration proceedings to be governed by the New Act. Thereupon, the learned Arbitrator appears to have framed his award dated 19.3.2005. The same was challenged by the MDA on 19.4.2005 by filing objections under Section 34 of the New Act. That proceedings was registered as Arbitration Case No. 49 of 2005. It came to be rejected by the impugned order dated 23.3.2013.
10. Perusal of the impugned order reveals that no specific finding has been returned by the the learned District Judge. Though submissions made have been noticed being - the appointment of the arbitrator was made without jurisdiction, such jurisdiction being available only by the Vice Chairman of the MDA; that appointment had been made contrary to the terms of contract between the parties; in any case, the award dated 19.3.2005 was time barred and; the award is against public policy of India, after noting the counter submissions made on behalf of the claimant, the learned District Judge proceeded to reject the objections filed by the MDA, on a cryptic observation - "After considering the entire facts and circumstances of the case I am of the opinion that the application deserves to be dismissed". No other or separate reason has been assigned to deal with the objections raised by the MDA. Only submissions made have been recorded.
11. Heard Sri Bhupeshwar Dayal, learned counsel for the appellant- MDA and Sri Amit Saxena, learned Senior Advocate, assisted by Sri Mushir Khan, learned counsel for the respondents.
12. First, it has been submitted by learned counsel for the appellant, under Clause 34 of the agreement, the sole arbitrator could be appointed only by the Vice Chairman of MDA and by no other person. If, for any reason whatsoever, as in the present case, it was not possible for the Vice Chairman to appoint an arbitrator, the matter could not be referred to arbitration at all. In this regard, non-appointment of an arbitrator simpliciter (after demand made by the claimant), has been canvassed as sufficient to invoke non-arbitrability clause between the parties. Reliance has been placed on a decision of Kerala High Court in Food Corporation of India & Anr. Vs. A. Mohd. Yunus, AIR 1987 Kerala 231.
13. By way of another reasoning, it has been further submitted, the terms of the agreement i.e. Clause 34 of the contract bonds must be construed strictly, both as to subject matter of arbitration as also the procedure for appointment of the arbitrator. In the instant case though there is no dispute as to the subject matter of dispute (which is clearly arbitrable), yet, in view of the binding clause providing that arbitration may arise only if the arbitrator be appointed by the Vice Chairman, MDA, the appointment made by the learned Additional Civil Judge (Senior Division), Meerut is void. Reliance has been placed on Oriental Insurance Company Limited Vs. Narbheram Power & Steel Pvt. Ltd., (2018) 6 SCC 534 and; M/s Dozco India Pvt. Ltd. Vs. M/s Doosan Infracore Co. Ltd., (2011) 6 SCC 179.
14. Alternatively, since the application made under Section 20 of the Old Act (for appointment of arbitrator), had been pressed by the claimant even upon enforcement of the New Act, clearly therefore, at the first opportunity available, the parties consented to proceed under the Old Act alone. No further power or occasion survived thereafter, to allow the parties to later change their consent, to continue the arbitration proceedings under the New Act. The Old Act alone would govern the arbitration proceedings that followed. In this regard, reliance has also been placed on M/S N. S. Nayak & sons Vs. State of Goa & Anr., (2003) 6 SCC 56.
15. Section 85(2) of the New Act does not contemplate or allow parties to switch between procedures prescribed or created under the Old Act and the New Act. In the instant case, at the first instance, the claimant proceeded to continue with the application filed under Section 20 of the Old Act and the learned sole arbitrator was appointed upon order passed in those proceedings. The parties thus consented in the negative - to not proceed under the New Act. They, bound themselves to be governed by the Old Act. No further scope or occasion survived to the parties, to later agree to proceed with the arbitration under the New Act. Thus, the subsequent conduct of the parties noted in the order passed under Section 34 of the New Act, of consenting before the arbitrator on 15.02.2005 (to allow the arbitration proceedings to be conducted under the New Act), is an act of no legal consequence. Reliance has been placed on M/s Setty's Construction Co. Pvt. Ltd. Vs M/s Kundan Railway Construction Co. Pvt. Ltd., AIR 1999 SC 1535. Since, no proceedings were pending before the arbitrator on 25.01.1996, there did not exist a stage for grant of consent to proceed under the New Act. In such facts, execution of the award that arose later could be pressed only under the Old Act, after obtaining a Rule of Court, as is also clearly held in the case of Thyssen Stahlunion GMBH Vs. Steel Authority of India Ltd., (1999) 9 SCC 334 (in the case of Thyssen itself). Milkfood Ltd. Vs GMC Ice Cream (P) Ltd., (2004) 7 SCC 288 has also been relied as to stage when consent may be given by the parties to adopt the procedure under the New Act.
16. Still alternatively, it has been submitted, if by any stretch, Clause 34 of the contract bonds dated 17.2.1987 and 12.5.1987, is read as evidence - parties had "otherwise agreed" to be governed by the New Act, the proceedings under Section 20 must necessarily be seen to have lost their legal sanction, immediately upon enforcement of the New Act. The continuance of proceedings under Section 20 of the Old Act and the appointment of arbitrator made thereafter, was contrary to Section 11 of the New Act and therefore wholly void ab initio.
17. Last, it has been submitted, without prejudice to the above, in any case, the arbitrator was appointed by the learned Additional Civil Judge (Sr. Div.), Meerut vide order dated 25.10.2004 whereas the award was made on 19.03.2005 well after the mandate of four months had expired. In that regard, it has been further submitted, in any case, the learned sole arbitrator has to be treated to have entered reference on 15.11.2004 - when he issued notice fixing the date 20.11.2004. Computed from that date, the mandate of four months expired on 14.03.2005. Therefore, the award made on 19.03.2005 was time barred. On such submissions, the order passed by the learned District Judge, Meerut rejecting the objections filed under Section 34 of the Act has been assailed.
18. Other grounds of challenge as had been raised in proceedings under Section 34 of the New Act, relating to the merits and other issues have not been canvassed in the present proceedings. Hence, the same are not being adverted to here.
19. Responding first to the second alternate submission made by learned counsel for the MDA, learned Senior Counsel for the claimant submits - the MDA never raised any challenge to the appointment of the learned sole arbitrator made by the learned Additional Civil Judge (Sr. Div.), Meerut (vide his orders dated 04.09.2004 and 25.10.2004), on ground of the New Act becoming the governing law between the parties, MDA did not raise any challenge under Section 33 of the Old Act, on that count and it also did not raise any such challenge in its objections filed under Section 34 of the New Act. Hence, no objection may be raised at this belated stage.
20. On the first alternate submission advanced by learned counsel for the MDA - regarding consent to abide by the Old/New Act, reference has been made both to Clause 34 of the contract bonds that clearly records that the parties agreed to proceed under the New Act, in case of disputes arising between them in future. Reference has been made to the decision of the Supreme Court in the case of Rani Constructions Pvt. Ltd. (CA No. 61 of 1999) Vs. Thyssen Stahlunion (supra) as followed and applied in Delhi Transport Corporation Vs. Rose Advertising, AIR 2003 SC 2523 as approved in Milkfood Ltd. Vs GMC Ice Cream (P) Ltd. (supra). Thus, it has been submitted, there is no defect in the pre-existing/prior consent given by the parties to be governed by the New Act, in the event of any disputes arising between them, in future, though on the date of execution of the contract, the New Act had not seen the light of day. The decision of the Supreme Court in M/s N.S. Nayak & Sons Vs St. of Goa (supra) nowhere holds that consent cannot be given to adopt and apply the procedure under the New Act, after appointment of an arbitrator. Thus the consent given by the parties, on 15.02.2005 (before the learned arbitrator), to proceed under the New Act is stated to be a valid consent. In that regard reliance has been placed on a decision of the Supreme Court in National Aluminium Co. Ltd. Vs. Pressteel and Fabrications Pvt. Ltd. & Ors., AIR 2005 SC 1514 and another decision of this Court in State of U.P. Vs. Allied Construction Engineers & Contractors, 2009 (2) AWC 1953.
21. As to the first submission raised by learned counsel for the MDA it has been submitted that the objection raised to the appointment of the learned arbitrator made by the learned court below under Section 20 of the Old Act has no merit inasmuch as it has never been the case of the MDA, either in proceedings under Section 20 of the Old Act or in objections filed under Section 34 of the New Act or in the present appeal that it was, in any way, impossible for the Vice Chairman of MDA to appoint an arbitrator. Therefore, in terms of Section 20(4) of the Old Act, the learned Additional Civil Judge (Sr. Div.), Meerut acquired the jurisdiction to make such an appointment. Reliance has been placed on the decisions of the Supreme Court in the cases of Nandyal Coop. Spinning Mills Ltd. Vs. K.V. Mohan Rao, (1993) 2 SCC 654 and G. Ramachandra Reddy & Co. Vs. Chief Engineer, Madras Zone, Military Engineering Service, (1994) 5 SCC 142. Reliance has also been placed on a decision of this Court in Agra Development Authority, Agra & Ors. Vs. Sheikhein International & Anr., 2007 (3) AWC 2371 as affirmed by the Supreme Court in Civil Appeal No. 5349 of 2009 (Agra Development Authority Agra & Ors. Vs. M/S Sheikhein International & Anr.) decided on 24.07.2019.
22. Next, it has been submitted, the award dated 19.03.2005 was made well within the mandate of four months in as much as it was made within four calendar months from the first date fixed by the arbitrator, in the arbitration proceedings, being 20.11.2004.Last, it has been submitted, if the appointment of the learned arbitrator is treated to have been made under the Old Act and therefore, the award framed is also treated to be one under the Old Act, then, on such reasoning the objections filed by the MDA and it's appeal filed under Section 37, both under the New Act, would also be not maintainable.
23. Last, it has been submitted, if the appointment of the learned arbitrator is treated to have been made under the Old Act and therefore, the award framed is also treated to be one under the Old Act, then, on such reasoning the objections filed by the MDA under Section 34 and it's appeal filed under Section 37, both under the New Act, would also be not maintainable.
24. Having heard learned counsel for the parties and having perused the record, in the first place, by way of a principle, it cannot be disputed to any extent that lack of inherent jurisdiction, if established, may result in the order dated 04.09.2004 being nullity in all or any proceedings. For any order passed by any authority, court or even arbitrator to have legal effect, it must be shown to be fulfilling inherent jurisdictional requirements. The majority view of four out of the seven judge Constitution Bench of the Supreme Court, in the case of UCO Bank Vs. Workmen, AIR 1951 SC 230 had laid down in early days of our constitutional law:
"The final contention that the sittings in the interval constituted only an irregularity in the proceedings cannot again be accepted because, in the first place, an objection was raised about the sitting of the two members as the Tribunal. That objection, whether it was raised by the appellants or the other party, is immaterial. The objection having been overruled, no question of acquiescence or estoppel arises. Nor can consent give a court jurisdiction if a condition which goes to the root of the jurisdiction has not been performed or fulfilled. No acquiescence or consent can give a jurisdiction to a court of limited jurisdiction which it does not possess. In our opinion, the position here clearly is that the responsibility to work and decide being the joint responsibility of all the three members, if proceedings are conducted and discussions on several general issues took place in the presence of only two, followed by an award made by three, the question goes to the root of the jurisdiction of the Tribunal and is not a matter of irregularity in the conduct of those proceedings. The absence of a condition necessary to found the jurisdiction to make the award or give a decision deprives the award or decision of any conclusive effect. The distinction clearly is between the jurisdiction to decide matters and the ambit of the matters to be heard by a Tribunal having jurisdiction to deal with the same. In the second case, the question of acquiescence or irregularity may be considered and overlooked. When however the question is of the jurisdiction of the Tribunal to make the award under the circumstances summarized above, no question of acquiescence or consent can affect the decision."
25. Undisputedly, the application under Section 20 of the Old Act had been filed on 11.10.1989. On that date, the only law applicable for appointment of arbitrator was the Arbitration Act, 1940. Under Section 20 of that Act, in face of an arbitration agreement between the parties and upon arising a difference, either party to that agreement could have applied the Court to require filing of such agreement, in Court. Thereafter, upon notice to the other party, the Court was empowered to make an order of reference to the arbitrator, in the first place, appointed by the parties or if the parties were unable to agree to such an appointment, to an arbitrator appointed by the Court.
26. In the present facts, there is no doubt that there existed an arbitration agreement between the parties and also that there had arisen a dispute between them. Further, despite service of notice dated 08.05.2019 issued by the claimant to the MDA, to appoint an arbitrator, no such appointment came to be made. Hence, the pre-requirement for filing an application under Section 20 of the Old Act undisputedly stood established on the date 11.10.1989, when that application came to be filed by the claimant. It is also a fact that such application remained pending for a long period of time i.e. till 04.09.2004 which is close to 15 years.
27. On the other hand, the New Act that is the Arbitration & Conciliation Act, 1996 was enforced on 25.01.1996. Up to that date, the application filed by the claimant under Section 20 of the Old Act did not suffer from any defect of jurisdiction or otherwise. In fact, that application had remained fully maintainable till then. If it had been decided till as late as 24.01.1996 (as, in fact, it should have been), there would have no issue with any party.
28. Thus, clearly the application filed by the claimant under Section 20 of the Old Act did not suffer from any inherent lack of jurisdiction, on the date of its filing. Therefore, the plea of nullity set up by MDA has to be examined only in the context of the enforcement of the New Act and its impact on proceedings that upto that point in time, were within jurisdiction. In this regard, Section 85 of the New Act reads as below:
"85. Repeal and savings.--(1) The Arbitration (Protocol and Convention) Act, 1937 (6 of 1937), the Arbitration Act, 1940 (10 of 1940) and the Foreign Awards (Recognition and Enforcement) Act, 1961 (45 of 1961) are hereby repealed.
(2) Notwithstanding such repeal,--
(a) the provisions of the said enactments shall apply in relation to arbitral proceedings which commenced before this Act came into force unless otherwise agreed by the parties but this Act shall apply in relation to arbitral proceedings which commenced on or after this Act comes into force;
(b) all rules made and notifications published, under the said enactments shall, to the extent to which they are not repugnant to this Act, be deemed respectively to have been made or issued under this Act."
Also, Section 21 of the New Act reads as below:
"21. Commencement of arbitral proceedings.--Unless otherwise agreed by the parties, the arbitral proceedings in respect of a particular dispute commence on the date on which a request for that dispute to be referred to arbitration is received by the respondent."
29. Plainly, in absence of any agreement, otherwise drawn, the statutory scheme clearly protects the arbitral proceedings that had been instituted before enforcement of the New Act. By virtue of Section 21 of the New Act, arbitral proceedings commenced as soon as notice for appointment of arbitrator was received by the opposite party. In absence of any dispute to service of notice (to appoint arbitrator), on MDA, prior to 25.01.1996, it has to be accepted that in the first place the application filed under Section 20 of the Old Act, by the claimant on 11.10.1989 and the arbitration to follow would be governed by the provision of the Old Act. Not only pending arbitration proceedings been saved, but also, the provisions of the Old Act have been saved in entirety with respect to any arbitral proceedings that may be found to have commenced. Moreover, there is no provision for transfer or abatement of any existing arbitral proceeding or any arbitration proceeding. Therefore there was no inherent lack of jurisdiction in institution of those proceedings even upon enforcement of the New Act.
30. By virtue of saving clause contained in Section 85 of the New Act, it became a fact or a ground available to the parties to be pleaded and proved, that the proceedings under Section 20 of the Old Act would not survive because the New Act came into force on 25.01.1996. In other words, the legislative action did not, by its own force, oust the jurisdiction of the learned Additional Civil Judge (Senior Division), Meerut, to proceed with the application filed under Section 20 of the Old Act. It only allowed the parties an option to plead that the New Act applied. Such plea could be accepted only if the party pleading such fact could establish existence of an agreement between the parties or consent of the other, to apply the New Act.
31. Then, for ready reference, Clause 34 i.e. the arbitration clause (identical in both contract bonds), is quoted below:
"Clause 34- Except where otherwise provided in the arbitration contract all questions and disputes relating to the meaning of the specification, designs, drawing and instruction herein mentioned, and as to the quality of workmanship of materials used on the work or as to any other questions, claim right materials used or thing whatsoever, in any way arising out of relating, to the contract, designs, drawing, specifications, estimates, instruction, order or these conditions or otherwise the work or the execution or failure to execute the same whether arising during or failure to execute the same whether arising during the progress of the work or after the completion or abandonment thereof shall be referred to the Sole Arbitration of the person appointed by the Vice Chairman M.D.A. Of the work at the time of dispute. It will be no objection to any such appointment that the Arbitrator is a Government servant then he had to deal with matters, to which the contract relates and that in the course of his duties as Government servant, he had expressed views on all or any of the matters in dispute or difference in the event of the arbitrator or to whom the matter is originally referred being transferred or vacating his office or being unable to act for any such reason, Chief Engineer at the time of such transfer, vacation of office or inability to act, shall appoint another person to act as Arbitrator in accordance with the terms of the Contract. Such person shall be entitled to proceed with reference from the stage at which it was left by his predecessor. It is also a term of this contract that no person other than a person appointed by the Vice Chairman should act as Arbitrator, and if for any reason that is not possible, the matter is not to be referred to arbitrator at all.
Subject as aforesaid-the provision of the Arbitration Act, 1940 or any statutory modification or re-enactment thereof and the rules made thereunder and for the time being in force shall apply to the arbitration proceeding under this clause."
32. Undoubtedly, in view of categorical pronouncement of the Supreme Court in the case of Rani Constructions Pvt. Ltd. (CA No. 61 of 1999) as reported in Thyssen Stahlunion (supra) and DTC Corporation Ltd. (supra) there can be no doubt that aforesaid Clause 34 constitutes a valid, pre-existing agreement between the parties, to allow the New Act to govern the proceedings for arbitration that arose between them. Therefore, all that then survives for consideration is, whether in face of such an agreement, the appointment of arbitrator by the learned Additional Civil Judge (Senior Division), Meerut was void.
33. As noted above, the proceedings under Section 20 of the Old Act did not suffer from any inherent lack of jurisdiction or defect on the date of institution. Also, it did not itself become void upon enforcement of the New Act. Had the plea based on Clause 34 of the contract bonds been raised and pressed by the MDA, before the learned Additional Civil Judge (Senior Division), Meerut passed the order dated 04.09.2004, the claimant would have had a right to object to the same and the learned Civil Judge would have been obliged to decide the same. If it had been found, on such objections, that the application filed by the claimant could not be pressed, in that case, a right would have survived to the claimant to seek appointment of an independent arbitrator under Section 11 of the New Act. By not raising any objection at the stage when it became available to it, the MDA allowed the proceedings under Section 20 of the Old Act to continue and conclude. In Prasun Roy v. Calcutta Metropolitan Development Authority, (1987) 4 SCC 217, appointment of an arbitrator, made by the Court, in year 1983 was first challenged in the year 1985, that too after submitting to the jurisdiction of the learned arbitrator so appointed and after long participation in such arbitration proceedings. The Supreme Court considered:
"5. Can a party be permitted to do that? In Jupiter General Insce. Co. Ltd. v. Corporation of Calcutta P.B. Mukharji, J. as the learned Chief Justice then was observed:
"It is necessary to state at the outset that courts do not favour this kind of contention and conduct of an applicant who participates in arbitration proceedings without protest and fully avails of the entire arbitration proceedings and then when he sees that the award has gone against him he comes forward to challenge the whole of the arbitration proceedings as without jurisdiction on the ground of a known disability of a party. That view of the court is ably stated by the editor of the 15th edn. of Russell on the Law of Arbitration at page 295 in the following terms:
''Although a party may by reason of some disability be legally incapable of submitting matters to arbitration that fact is not one that can be raised as a ground for disputing the award by other parties to a reference who were aware of the disability. If one of the parties is incapable the objection should be taken to the submission. A party will not be permitted to lie by and join in the submission and then if it suits its purpose attack the award on that ground. The presumption in the absence of proof to the contrary will be that the party complaining was aware of the disability when the submission was made'."
6. Mr Kacker submitted that this principle could be invoked only in a situation where the challenge is made only after the making of an award, and not before. We are unable to accept this differentiation. The principle is that a party shall not be allowed to blow hot and cold simultaneously. Long participation and acquiescence in the proceeding preclude such a party from contending that the proceedings were without jurisdiction.
7. Russell on Arbitration, 18th edn. page 105 explains the position as follows:
"If the parties to the reference either agree beforehand to the method of appointment, or afterwards acquiesce in the appointment made, with full knowledge of all the circumstances, they will be precluded from objecting to such appointment as invalidating subsequent proceedings. Attending and taking part in the proceedings with full knowledge of the relevant fact will amount to such acquiescence.
8. The Judicial Committee in its decision in Chowdhri Murtaza Hossein v. Mussumat Bibi Bechunnissa observed at page 220:
On the whole, therefore, Their Lordships think that the appellant, having a clear knowledge of the circumstances on which he might have founded an objection to the arbitrators proceeding to make their awards, did submit to the arbitration going on; that he allowed the arbitrators to deal with the case as it stood before them, taking his chance of the decision being more or less favourable to himself; and that is too late for him, after the award has been made, and on the application to file the award, to insist on this objection to the filing of the award."
Relying on the aforesaid observations this Court in N. Chellappan v. Secretary, Kerala State Electricity Board acted upon the principle that acquiescence defeated the right of the applicant at a later stage. In that case the facts were similar. It was held by conduct there was acquiescence. Even in a case where initial order was not passed by consent of the parties a party by participation and acquiescence can preclude future challenges.
9. In the grounds of appeal no prejudice has been indicated by the appointment of the second arbitrator.
10. Mr S.N. Kacker, learned Counsel for the respondents drew our attention to the fact that the decision in the Chowdhri Murtaza Hossein case was where the party challenged the appointment of the receiver after the award was made. He also submits that in this case the respondents herein had challenged the order of appointment of the arbitrator on 19-4-1983 and not after the arbitrator had made the award. We are unable to accept this distinction. Basically the principle of waiver and estoppel is not only applicable where the award had been made but also where a party challenges the proceedings in which he participated. In the facts of this case, there was no demur but something which can be called acquiescence on the part of the respondents which precludes them from challenging the participation (sic proceedings)."
34. In Dharma Pratisthanam Vs Madhok Construction (Pvt. Ltd.), (2005) 9 SCC 686, a three judge bench of the Supreme Court had the occasion to consider the effect of acquiescence on appointment of arbitrator. In that regard, the Supreme Court examined the difference between the unilateral appointment and unilateral reference. While both were termed to be illegal, at the same time, it was observed that it would make a difference if in respect of unilateral appointment and reference, other party submits to the jurisdiction of the arbitrator and waives its rights which it had under the agreement. In that situation, the arbitrator was held entitled to proceed with reference and the party submitting to his jurisdiction and participating in the proceedings precluded and estopped from raising any objection in that regard, at a later stage. If, however, that party had failed to act when called upon, it could not lead to an inference of implied consent or acquiescence being drawn. Thus, the appellant in that case was found to have not responded to the proposal by the other side to join in the appointment of the sole arbitrator. Such an act was not construed as its consent. It was held:
"31. Three types of situations may emerge between the parties and then before the court. Firstly, an arbitration agreement, under examination from the point of view of its enforceability, may be one which expresses the parties' intention to have their disputes settled by arbitration by using clear and unambiguous language, then the parties and the court have no other choice but to treat the contract as binding and enforce it. Or, there may be an agreement suffering from such vagueness or uncertainty as is not capable of being construed at all by culling out the intention of the parties with certainty, even by reference to the provisions of the Arbitration Act, then it shall have to be held that there was no agreement between the parties in the eye of the law and the question of appointing an arbitrator or making a reference or disputes by reference to Sections 8, 9 and 20 shall not arise. Secondly, there may be an arbitrator or arbitrators named, or the authority may be named who shall appoint an arbitrator, then the parties have already been ad idem on the real identity of the arbitrator as appointed by them beforehand; the consent is already spelled out and binds the parties and the court. All that may remain to be done in the event of an occasion arising for the purpose, is to have the agreement filed in the court and seek an order of reference to the arbitrator appointed by the parties. Thirdly, if the arbitrator is not named and the authority who would appoint the arbitrator is also not specified, the appointment and reference shall be to a sole arbitrator unless a different intention is expressly spelt out. The appointment and reference -- both shall be by the consent of the parties. Where the parties do not agree, the court steps in and assumes jurisdiction to make an appointment, also to make a reference, subject to the jurisdiction of the court being invoked in that regard. We hasten to add that mere inaction by a party called upon by the other one to act does not lead to an inference as to implied consent or acquiescence being drawn. The appellant not responding to the respondent's proposal for joining in the appointment of a sole arbitrator named by him could not be construed as consent and the only option open to the respondent was to have invoked the jurisdiction of court for appointment of an arbitrator and an order of reference of disputes to him. It is the court which only could have compelled the appellant to join in the proceedings."
35. A converse position (on facts), exists in the present case. Here, the claimant had issued a notice requiring the MDA to appoint an arbitrator. In the least, the MDA failed to appoint an arbitrator. This led to the filing of an application under Section 20 of the Old Act by the claimant. As noted above, that application was wholly maintainable in law on the date of its filing. Also, enforcement of the New Act did not ipso facto render that application, not maintainable. The only situation when that application could have been rejected or dealt with in a manner as may have had the effect of it being held not maintainable, would be if the MDA had brought to the knowledge of the learned Additional Civil Judge (Senior Division), Meerut, Clause 34 of the contract bonds and if it had pressed before that Court that that application be dismissed, for that reason. Even in that case such an objection would have had to be adjudicated by the learned court below. Otherwise no inference could arise that the application had been rendered not maintainable or infructuous. Despite being called upon, the MDA had not raised such objection.
36. What therefore necessarily follows from the above - merely upon enforcement of the New Act, the proceedings on the application filed under Section 20 of the Old Act were not rendered void or lacking in jurisdiction. Therefore, in absence of any objection being raised by the MDA as to jurisdiction, there was no inherent lack of jurisdiction on part of the learned Additional Civil Judge (Senior Division), Meerut in proceeding to decide the application under Section 20 of the Old Act. Thus, the conduct of the MDA is relevant and in fact decisive to the issue. Once the MDA participated in the proceedings for appointment of arbitrator without raising any objection in light of Clause 34 of the contract bonds, read with Sections 85 and 21 of the New Act and allowed such appointment to be made and further did not challenge that order but also participated in the proceedings before the learned arbitrator so appointed, clearly, the MDA acquiesced to the position and, therefore, the present case falls in the category of cases discussed by the Supreme Court in the case of Dharma Pratisthanam VS. Madhok Construction (Pvt. Ltd.) (supra), where despite defect of jurisdiction, the plea of nullity does not arise.
37. Similar approach appears to have been taken by the Division Bench of this Court in the case of Agra Development Authority (supra), wherein, referring to the decision of the Supreme Court in Prasun Roy Vs. Calcutta Metropolitan Development Authority & Anr., AIR 1988 SC 205, it was held that long participation and acquiescence in the proceedings preclude a party from contending that the proceedings were without jurisdiction. The principle of waiver and estoppel were held applicable to proceedings for challenge of appointment of arbitrator as applicable to the proceedings to challenge the award. The division bench of this Court further observed that the words 'long participation' have to be read in conjunction with the word 'acquiescence'.
38. Here, appointment of the arbitrator was made on 04.09.2004. However, no challenge was raised thereto. Later, the MDA participated in the proceedings before the arbitrator and allowed the award to be made without any let or objection as to his jurisdiction on account of New Act having been enforced. The only objection that appears to have been raised, is that the Vice Chairman MDA alone and not the Court could have made the appointment. However, that objection is quite distinct from the objection as to lack of jurisdiction upon enforcement of the New Act. The division bench decision of this Court is also shown to have been confirmed in appeal by the Supreme Court in Civil Appeal Nos. 5349 and 5350 of 2009, Agra Development Authority Vs M/s Sheikhein International & Anr. decided on 24.07.2019, wherein it was observed as under:
"Having heard the learned counsel appearing for the appellants, the learned counsel appearing for the respondents and carefully scrutinizing the material available on record, we see no reason to interfere with the impugned order dated 6.4.2007 passed by the High Court of Judicature at Allahabad in F.A.F.O. Nos. 552 of 1996 and 553 of 1996 respectively.
The Civil Appeals are, accordingly, dismissed.
If any proceeding is pending before the Civil Judge, Agra under Section 34 of the Arbitration and Conciliation Act, 1996, the same shall be proceeded with in accordance with law and both the parties at liberty to argue the matter before the said Court."
39. That being an order passed on the civil appeal, its precedential value clearly exists. Accordingly, the objection raised by the appellant as to inherent lack of jurisdiction and consequently to the award being void ab initio, is rejected. The issue of defect if any in the appointment of the learned arbitrator remained unexamined and undetermined in absence of any objection being raised by the MDA, at the appropriate time i.e. before the court of first instance or the learned Additional Civil Judge (Senior Division), Meerut who decided the application under Section 20 of the Old Act. The objection if raised would have involved appreciation of evidence, besides law, before it could be adjudicated. In absence of that adjudication, it cannot be entertained now, at this late stage. Consequently, for purpose of the present appeal, the appointment of the learned sole arbitrator has to be treated as valid in law.
40. As to the consent and its effect, in the first place, in the proceedings before the arbitrator, in view of Clause 34 of the contract bonds, read in light of Section 85 and Section 21 of the New Act as also the consent recorded on 15.02.2005 in the proceedings before the arbitrator, it has to be treated as an award made in accordance with the provisions of the New Act. In the first place, by virtue of Clause 34 of the contract bonds, the New Act became available upon its enforcement. Then, by specific consent given by the parties on 15.02.2005, they signified to follow the procedure prescribed under the New Act only. The submission advanced by learned counsel for the appellant that the option to proceed under the New Act had to be exercised at the first instance, i.e. at the earliest upon enforcement of the New Act, is plainly unsubstantiated. There is nothing in the New Act or in the language of Section 85, as may allow such an interpretation to arise. Plainly, two Acts deal with resolution of disputes by means of an alternative and well-recognized mode of arbitration. A rule of procedure which has been allowed to be moulded by the parties according to their will, cannot be restricted in the manner suggested by learned counsel for the appellant. In absence of any statutory indication for the same and in absence of any reasonable ground being shown for such construction to be made, the submission advanced has to be rejected. Beginning from M/s Rani Constructions Pvt. Ltd. (C.A. No. 61 of 1999) as reported in Thyssen Stahlunion GMBH (supra) and as followed in Delhi Transport Corporation Vs Rose Advertising (supra) as also Milkfood Ltd. (supra), the law has remained unequivocally constant, that parties to an arbitration contract could agree to the applicability of the New Act even before the New Act came into force and even when the Old Act was still holding the field. Reliance has wrongly been placed by the appellant on the following observation made in N.S. Nayak & Sons v. State of Goa (supra):
"16. The aforesaid discussion only deals with the contention that parties could not have agreed to the application of the new Act till they had the knowledge about the provisions thereof and, therefore, the agreement to the effect that to the arbitral proceedings, the provisions of the Arbitration Act, 1940 or any statutory modification or re-enactment thereof would be applicable, is not valid. The Court negatived the said contention by interpreting the expression "unless otherwise agreed". The Court held that such agreement could be entered into even before coming into force of the new Act. However, it nowhere lays down that in a pending arbitral proceeding, which was being conducted as per the procedure prescribed under the old Act, the parties have option of changing the procedure."
41. That was a case where arbitrators had been appointed much prior to enforcement of the New Act though individual awards came into existence thereafter. An objection was raised by the claimant that appeals filed by the State Government of Goa against those awards, under Section 37 of the Old Act, be decided on the basis of the New Act, in view of the following pre-existing agreement between the parties:
"Subject as aforesaid, the provisions of the Arbitration Act, 1940, or any statutory modification or re-enactment thereof and the Rules made thereunder and for the time being in force shall apply to the arbitration proceedings under this clause."
42. In such facts, the Supreme Court noticed the ratio of its earlier decision in Thyssen Stahlunion GMBH (supra) and categorically observed:
"12. In our view, paragraph 22 nowhere lays down that after the new Act came into force, even appeals filed under the provisions of the old Act are to be decided on the basis of the provisions contained in the new Act........."
43. Therefore, the ratio of the case has to be read, limited to what was actually decided being, that clause of the contract bonds (in the instant case), cannot alter the basis for decision in appeals if those appeals had been filed (by MDA). Such is not the fact here. In fact, by filing objections under Section 34 of the New Act, the MDA has itself further acted otherwise, apparently on its consent recorded both in Clause 34 of the contract bonds and also before the arbitrator, on 15.02.2005. It cannot now, be permitted to turn around and object to the procedure adopted with its consent obtained in accordance with law, especially in absence of any other defect being claimed in the award.
44. Insofar as the decision in the cases of Oriental Insurance Company (supra) and M/S Dozco India Pvt. Ltd. (supra) are concerned, the same have no application to the facts of the present case inasmuch as in the case of Oriental Insurance Company (supra), the arbitration clause restricted the scope of reference to such cases only where the insurance company did not dispute its liability under or in respect of the policy. A reference made contrary to the opinion of the insurance company, in those facts, was found to be unenforceable. Similarly, in the case of M/S Dozco India Pvt. Ltd. (supra), the arbitration agreement between the parties had fixed the place of arbitration at Korea and the governing law to be that of the Korea. Therefore, no reference could be contemplated or allowed to be made contrary to such an agreed clause.
45. Insofar as the ratio in the case of M/S Setty's Constructions Co. Pvt. Ltd. (supra) is concerned, in that case, the dispute though pertained to appointment of arbitrator pending under the Old Act and the effect of Section 85 of the New Act was considered, however, it remained undisputed that in that case, the High Court had dismissed the claim as premature. That was the main issue considered by the Supreme Court whereon the matter was adjourned. In such proceedings, a preliminary issue was raised as to whether the proceedings for appointment of arbitrator would, in light of enforcement of the New Act, be governed by or under that Act. That preliminary objection was answered holding that the Old Act would continue to govern the proceedings for appointment of arbitrator in view of the fact that such proceedings had been instituted prior to the enforcement of the New Act. However, there was no pre-existing or other agreement between the parties in dispute (in that case), similar to Clause 34 of the contract bonds, in this case. In any case, that objection was not raised by the MDA at the relevant time as was done in M/s. Setty's Construction Co. Pvt. Ltd. (supra). Here, the MDA also appears to have filed objections under Section 34 of the New Act against such award and the same have been dealt with accordingly. The objection to the contrary is again found unsubstantiated and therefore rejected.
46. As to the first submission advanced by learned counsel for the MDA that the appointment of the arbitrator by the learned Additional Civil Judge (Senior Division), Meerut was invalid, in face of the stipulation contained in Clause 34 of the contract bonds giving that power of appointment to the Vice Chairman of MDA, the issue is no longer res integra in view of the categorical pronouncement made by the Supreme Court in the case of Nandyal Coop. Spinning Mills Ltd. (supra) where the in it has been held:
"11. It would thus be clear that if no arbitrator had been appointed in terms of the contract within 15 days from the date of receipt of the notice, the administrative head of the appellant had abdicated himself of the power to appoint arbitrator under the contract. The court gets jurisdiction to appoint an arbitrator in place of the contract by operation of Section 8(1)(a). The contention of Shri Rao, therefore, that since the agreement postulated preference to arbitrator appointed by the administrative head of the appellant and if he neglects to appoint, the only remedy open to the contractor was to have recourse to civil suit is without force. It is seen that under the contract the respondent contracted out from adjudication of his claim by a civil court. Had the contract provided for appointment of a named arbitrator and the named person was not appointed, certainly the only remedy left to the contracting party was the right to suit. That is not the case on hand. The contract did not expressly provide for the appointment of a named arbitrator. Instead power has been given to the administrative head of the appellant to appoint sole arbitrator. When he failed to do so within the stipulated period of 15 days enjoined under Section 8(1)(a), then the respondent has been given right under Clause 65.2 to avail the remedy under Section 8(1)(a) and request the court to appoint an arbitrator. If the contention of Shri Rao is given acceptance, it would amount to putting a premium on inaction depriving the contractor of the remedy of arbitration frustrating the contract itself."
47. Again in G. Ramachandra Reddy & Co. (supra), a similar view had been expressed. Therefore, once the MDA failed to appoint an arbitrator upon specific request made by the claimant, the latter was within its rights to move an application under Section 20 of the Old Act for appointment of an arbitrator. In such proceedings, once the parties could not agree to appointment of a consented arbitrator, it was left only to the Court to make that appointment. Thus, the appointment of Shri V.K. Tyagi as the sole arbitrator did not suffer from any defect.
48. As to the last submission advanced by learned counsel for the appellant, by virtue of Para 3 Schedule I to the Old Act read with Section 3 thereof, the limitation to make the award was four months from the date the learned arbitrator entered reference. On one hand, the MDA has failed to prove any specific date on which it claims, the arbitrator entered reference. In that regard, even the copy of the notice alleged to be dated 15.11.2004 h
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as not been proved. Thus, a bald allegation appears to exist that the learned arbitrator had entered reference on or before 15.11.2004. 49. On the other hand, it admitted the first date in the proceedings, fixed by the learned arbitrator to be 20.11.2004. The learned arbitrator has also stated in his award - "....I accepted the appointment and entered into reference accordingly and fixed Saturday, the 20th Nov 2004 as the 1st date for appearance of the parties and their respective Counsels". This being admitted, clearly, the arbitrator did enter reference on that date and not later. A division bench of this Court in Sardar Mal & Ors. Vs. Sheo Bakhsh Rai & Ors., AIR 1922 All 106, relying on two decisions of English Courts opined, "entering upon the reference" means not when an arbitrator accepted the office or took upon himself that duty, but when he actually entered upon the matter of the reference, when the parties were before him, or under some peremptory order compelling him to conclude the hearing ex parte. Thus, it was observed: "3. We are of opinion that the provisions "entering on the reference" and "having been called upon to act by notice in writing" are alternative in this sense that where no reference is entered upon at all then the time runs from the notice calling upon the arbitrators to act. But, on the other hand, even although the arbitrators may be called upon to act by entering upon the reference, if they enter upon the reference, they have three months from that moment for making their award and for enlarging the time for making the award if the circumstances at the reference satisfy them that they cannot complete the award within three months. To hold otherwise would seem to strike out from Clause 3 the words "within three months after entering on the reference" in a case where one of the parties happened to call upon the arbitrators to act before they began the reference. 4. This clause was considered by the English Court of Appeal in Baring-Gould v. Sharpington (1899) 2 Ch., 80 and the view which we take seems to be that which was laid down by the Master of the Rolls, the late Lord Lindley, in a passage contained in page 91 of the report. 5. In addition to that, under the old clause in England, which was slightly different in form, an equally strong court came to the conclusion in Baker v. Stephens (1867) L.R.2 Q.B. 523 that "entering upon the reference" means "not when an arbitrator accepts the office, or takes upon himself the duty, but when he actually enters upon the matter of the reference, when the parties are before him, or under some peremptory order compelling him to conclude the hearing ex parte." 50. Similar view was taken by a Full Bench of the Calcutta High Court in Ramanath Agarwalla Vs. Goenka & Co. & Ors., AIR 1973 Cal. 253, wherein the Full Bench of the Calcutta High Court, first took note of the above Division Bench decision of this Court in Sardar Mal (supra) and thereafter concluded as below: "28. We have already observed that an Arbitrator under the provisions of the Arbitration Act is required to act as an Arbitrator. His acting as arbitrator includes (a) entering on reference, (b) proceeding with the reference, and (c) making an award. It follows that the expression "acting as an Arbitrator" is wider than "entering on the reference". Now, the dictionary meaning of "to enter on", in the context in which the expression has been used in the Arbitration Act, is "to take the first step upon or in" or "to begin to deal with a subject": vide Shorter Oxford English Dictionary. Vol. 1. p. 646. 29. Entering on reference, therefore refers to the first step that the Arbitrator takes in the reference, that is to say, when he begins to deal with the reference. The Arbitrator, under the Act, may have to do various ministerial acts but the doing of any of the ministerial acts is not entering on the reference. It is only when he first applies his mind to the dispute referred to him that he enters on the reference. When, however, in a particular case, he first applied his mind to the dispute would depend, on the facts and circumstances of that case. 30. There have been a number of recent decisions on this point which we may conveniently refer to. The Patna High Court in Sonevlal Thakur v. Lachhminarain, AIR 1957 Pat 395 at p. 397 in paragraph 5 has stated that an Arbitrator does not enter upon a reference the moment he accepts to work as an arbitrator, nor can it be said that he enters upon a reference only when he actually hears the reference. An Arbitrator enters upon a reference when, after having accepted the reference, he applies his mind and does something in furtherance and execution of the work of arbitration. The exact date as to when an arbitrator enters on a reference in a particular case however, has to be determined on the facts and circumstances of the case." 51. Thus, the fact of issuance of notice dated 15.11.2004 by the arbitrator, even if assumed to be correct, would not itself amount to the learned arbitrator having entered reference on that date. He entered reference on 20.11.2004. Computed from the first date fixed in arbitration, he had time upto 19 March 2005 to make the award as his four month mandate survived till then. In absence of any earlier date being shown to exist, on which the learned arbitrator applied his mind to the subject matter of dispute put up for arbitration, the award made on 19.03.2005, appears to have been made within time and it also does not suffer from any defect of limitation. 52. Appeal lacks merit and is accordingly dismissed. Interim order granted earlier is vacated.