UNION OF INDIAversusM/S PAM DEVELOPMENT PVT. LTD.

                   [2014] 1 S.C.R. 1069


                     UNION OF INDIA                           A
                             v.
          MIS PAM DEVELOPMENT PVT. LTD.
             (Civil Appeal No. 5618 of 2006)

                   FEBRUARY 18, 2014.
                                                               B
            [SURINDER SINGH NIJJAR AND
            RANJANA PRAKASH DESAI, JJ.]

     Arbitration and Conciliation Act, 1996: s. 11 (6) -
Jurisdiction of arbitrator to entertain the dispute - Agreement C
for construction of Loco shed - Termination of contract -
Arbitration application uls. 11 (6) by respondent - Appointment
of former judge as arbitrator - Full participation of appellant -
Award by arbitrator - s.34 application by appellant for setting
aside of award - Dismissed by High Court - On appeal, held: D
Although in the instant case, arbitration agreement provided
for appointment of two arbitrators and an Umpire, however, in
view of repeal of Arbitration Act, 1940 by Arbitration Act, 1996,
the provision in the arbitration agreement for appointment of
two arbitrators and an Umpire had become redundant - E
Appointment of former judge as arbitrator was not challenged
by the appellant and, therefore, the same became final and
binding - This apart, appellant failed to raise objection
regarding lack ofjurisdiction of the Arbitral Tribunal before the
arbitrator - Appellant not only filed the statement of defence F
but also raised a counter claim against the respondent and,,
therefore, objection is deemed to have been waived in view
of the provisions contained in s.4 rlw s. 16 of the Arbitration
Act, 1996 - s.16 provides that the Arbitral Tribunal may rule
on its own jurisdiction and clearly recognizes the principle of
kompetenz-kompetenz - s. 16(2) mandates that a plea that the
Arbitral Tribunal does not have jurisdiction shall be raised not
later than the submission of the statement of defence - s. 4


                            1069
    1070    SUPREME COURT REPORTS                 [2014] 1 S.C.R.


A provides that a parly who knows that 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 shall be deemed
  to have waived his right to so object - High Courl rightly held
B that the appellant having failed to raise the plea of jurisdiction
  before the Arbitral Tribunal cannot be permitted to raise the
  plea before it for the first time - Doctrine/Principle - Principle
  of kompetenz-kompetenz.

        Bharat Sanchar Nigam Limited and another versus
C Motorola India Private Limited (2009) 2 SCC 337: 2008 (13)
    SCR 445 - relied on.

                         Case Law Reference:

D       2008 (13) SCR 445Relied on                        Para 18

        CIVIL APPELLATE JURISDICTION : Civil Appeal No.
    5618 of 2006.

      From the Judgment and Order dated 15.06.2005 of the
E High Court of Calcutta in APOT No. 643 of 2003.

        P.P. Malhotra, ASG, Syed Tanweer Ahmad, Sonia
    Malhotra, Shreekant N. Terdal, Yasir Rauf for the Appellant.

        Pranab Kumar Mullick, Soma Mullick for the Respondent.
F
        The following Order of the Court was delivered

                                  ORDER

       1. This appeal has been filed by the Union of India
G challenging the judgment and order of the Calcutta High Court
  dated 15th June, 2005 rendered in APOT N0.643 of 2003.

      2. We may notice here the bare essential facts, which
  would have a bearing on the legal controversy involved in the
H appeal.
UNION OF INDIA v. PAM DEVELOPMENT PVT. LTD.1071


     3. On 19th October, 1992, the appellant entered into an        A
agreement with the respondent for construction of Industrial
Covered Electrical Loco Shed. Subsequently, according to the
appellant, the agreement was terminated in terms of clause 64
of the General Conditions of Contract by which ~he agreement
between the parties was governed. The twin reasons for              B
termination of the contract were that the respondent initially
delayed the commencement of the work and subsequently
executed the work which was of inferior quality. Therefore, the
appellant had to get the balance work completed from another
contractor.                                                         c
     4. On 24th July, 1996, the respondent raised certain
claims against the appellant. ·

     5. On 30th September, 1996, the respondent demanded
that the disputes be referred to arbitration.                       D

     6. Since the disputes were not referred to arbitration, the
respondent approached the High Court of Calcutta under
Section 11 (6) of the Arbitration and Conciliation Act, 1996
(hereinafter referred to as "the Arbitration Act, 1996") for the    E
appointment of a sole arbitrator. The High Court by its order
dated 10th July, 1998 appointed Mr. Justice Satyabrat Mitra
as the sole arbitrator. The learned arbitrator duly commenced
the arbitration proceedings, in which the appellant fully
participated. The appellant filed statement of defence. Upon
completion of the arbitration proceedings, the learned arbitrator   F
made the award on 25th January, 2002. The claims of the
respondent were accepted and the award was rendered in
favour of the contractor in the sum of Rs.1,29,89, 768/-.

     7. Aggrieved by the aforesaid award, the appellant filed       G
an application under Section 34 of the Arbitration Act, 1996
before the High Court for setting aside the award. The lear.ned
single judge of the High court dismissed the aforesaid
application of the appellant on 2~th October, 2003.
                                                                    H
    1072     SUPREME COURT REPORTS                   [2014] 1 S.C.R.


A        8. Aggrieved by the aforesaid order, the appellant filed
    Intra-Court appeal before the Division Bench of the High court,
    which has also been dismissed by the impugned judgment
    dated 15th June, 2005.

         9. The present appeal arises out of Special Leave Petition
8
    (Civil) No.20316 of 2005.

         10. We have heard the learned counsel for the parties at
    length.

c        11. Mr. P.P. Malhotra, learned Additional Solicitor General,
    appearing for the Union of India, submitted that the High Court
    committed an error of jurisdiction by appointing a former judge
    of the High court as the sole arbitrator. The appointment of the
    sole arbitrator was against the contractual conditions which
    cannot be ignored. Therefore, the reference was before a
0
    Arbitral Tribunal which had not been properly constituted. He
    also submitted that the arbitrator had no jurisdiction to entertain
    the claims with regard to certain excepted matters.

          12. On the other hand, the learned counsel for the
E   respondent has submitted that the appellant having participated
    in the proceedings before the learned arbitrator without any
    demur or objection cannot now be permitted to raise the
    objection with regard to the jurisdiction of the arbitrator at this
    belated stage. Learned counsel further submitted that in view
F   of express provision contained in Section 16 of the Arbitration
    Act, 1996, the Arbitral Tribunal is competent to rule on its own
    jurisdiction. He submits that pleas with regard to lack of
    jurisdiction of the learned arbitrator ought to have been raised
    not later than the submission of the statement of defence.
G   Learned counsel pointed out that no plea of lack of jurisdiction
    of the learned arbitrator was taken by the appellant in the
    statement of defence. Furthermore, the appellant also led
    evidence in defence. He also pointed out that the appellant, in
    fact, categorically accepted the jurisdiction of the learned
H   arbitrator by filing a counter claim in the proceedings. He
UNION OF INDIA v. PAM DEVELOPMENT PVT. LTD. 1073


submits that, in such circumstances, the appellant had clearly           A
waived its right to object to the constitution of the Arbitral
Tribunal. Similarly, the plea of excepted matters was also never
raised by the appellant during the entire arbitration proceedings.
All claims have been decided on merits.
                                                                         B
     13. We have considered the submissions made by the
learned counsel for the parties.

    14. The arbitration agreement contained in clause 64 of
the General Conditions of Contract is as under:
                                                                         c
     "64(3)(a) ARBITRATION: Matters in question, dispute or
     difference to be arbitrated upon shall be referred for
     decision to

     3(a)(i) A Sole Arbitrator who shall be the General Manager
                                                                         0
     or a Gazetted Railway Officer nominated by him in that
     behalf in cases where the claim in question is below
     Rs.5,00,000/- (Rupees five lakhs) and in cases where the
     issues involved are not of complicated nature. The General
     Manager shall be the sole Judge to decide whether or not
     the issues involved are of a complicated nature.                    E

     3(a)(ii) Two Arbitrators who shall be Gazetted Railway
     Officers of equal status to be appointed in the manner laid
     in Clause 64(3)(b) or all claims of Rs.5,00,000/- (Rupees
     five Lakhs) and above, and for all claims irrespective of           F
     the amount of value of such claims if the issues involved
     are of a complicated nature the General Manager shall be
     the sole Judge to decide whether the issues involved are
     of a complicated nature or not. In the event of the two
     Arbitrators being divided in their opinions the matter under        G
     disputes will be referred to an Umpire to be appointed in
     the manner laid down in Clause 3(b) for his decision.

     3(a)(iii) It is a term of this contract that no person other than
     a Gazetted Railway Officer, should act as an Arbitrator/
                                                                         H
    1074    SUPREME COURT REPORTS                   [2014] 1 S.C.R.


A       Umpire and if for any reason, that is no possible, the matter
        is not to be referred to Arbitration at all. 3(a)(iv) In cases
        where the claim is up to Rs.5,00,000/- (Rupees five lakh),
        the Arbitrator(s) compare so appointed, as the case may
        be, shall give the award on all matters referred to arbitration
B       indicating therein break-up of the sums awarded
        separately on each individual item of disputes. In cases
        where the claim is more than Rs.5,00,000/- (Rupees five
        lakh), the Arbitrator(s)/Umpire so appointed, as the case
        may be, shall give intelligible award (i.e. the reasoning
c       leading to the award should be stated) with the sums
        awarded separately on each individual item of dispute
        referred to arbitration.

        3(b) For the purpose of appointing two arbitrators as
        referred to in sub-clause (a)(ii) above, the Railway will send
D       a panel of more than three names of Gazetted Railway
        Officers of one of more departments of the Railway to the
        contractor who will be asked to suggest to the General
        Manager one name out the list for appointment as the
        contractor's nominee. The General Manager, while so
E       appointment the contractor's nominee, will also appoint a
        second arbitrator as the Railway's nominee either from the
        panel or from outside the panel, ensuring that one the two
        arbitrators so nominated is invariably from the Accounts
        Department. Before entering upon the reference the two
F       arbitrators shall nominate an Umpire who shall be a
        Gazetted Railway Officer to whom the case will be referred
        to in the event of any difference between the two arbitrators
        Officers of the Junior Administrative grade of the Accounts
        Department of the Railways shall be considered as of
G       equal status to the Officers in the intermediate
        administrative grade of other departments of the Railway
        for the purpose of appointment as arbitrators."

         15. A persual of clause 64 would show that in case of
    claims which are below Rs.5,00,000/- (Rupees five lakh), the
H
 UNION OF INDIA v. PAM DEVELOPMENT PVT. LT0.1075


General Manager or a Gazetted Railway Officer nominated by            A
him shall be the sole arbitrator. In case of claims of Rs.5,00,000/
- (Rupees five lakh) and above, the Arbitral Tribunal shall consist
of three arbitrators to be appointed in terms of clause 64(3)(b).
Under clause 64(3)(b), the Railways will send a panel of more
than three names of Gazetted Railway Officers from whom the           8
contractor will be asked to suggest one name. The General
Manager will appoint the second arbitrator on behalf of the
Railways. The clause also provided that two arbitrators shall
nominate an Umpire who shall be a Gazetted Railway Officer.

      16. Since the Arbitration Act, 1940 had been repealed by        C
the Arbitration Act, 1996 the provision in the arbitration
agreement for appointment of two arbitrators and an Umpire
had become redundant. Accordingly, the respondent requested
the Railways to appoint the sole arbitrator. Since the Railways
failed to appoint the arbitrator within 30 days of the receipt of     D
the letter dated 30th September, 1996, the respondent moved
the application under Section 11 (6) of the Arbitration Act, 1996
for appointment of a sole arbitrator on 3rd January, 1997 before
the High Court As noticed above, by order dated 10th July,
1998, the High Court appointed Mr. Justice Satyabrata Mitra           E
as the sole arbitrator. It is important to notice that this order
dated 10th July, 1998 was not challenged by the appellant and,
therefore, the same became final and binding. This apart, the
appellant failed to raise any objection to the lack of jurisdiction
of the Arbitral Tribunal before the learned arbitrator. As noticed    F
above, the appellant not only filed the statement of defence but
also rasied a counter claim against the respondent. Since the
appellant has not raised the objection with regard to
competence/jurisdiction of the Arbitral Tribunal before the
learned arbitrator, the same is deemed to have been waived            G
in view of the provisions contained in Section 4 read with
Section 16 of the Arbitration Act, 1996.

     17. Section 16 of the Arbitration Act, 1996 provides that
the Arbitral Tribunal may rule on its own jurisdiction. Section 16
                                                                      H
    1076     SUPREME COURT REPORTS                   [2014) 1 S.C.R.


A clearly recognizes the principle of kompetenz-kompetenz.
  Section 16(2) mandates that a plea that the Arbitral Tribunal
  does not have jurisdiction shall be raised not later than the
  submission of the statement of defence. Section 4 provides that
  a party who knows that any requirement under the arbitration
8 agreement has not been complied with and yet proceeds with
  the arbitration without stating his objection to such non-
  compliance without undue delay shall be deemed to have
  waived his right to so object.

        18. In our opinion, the High Court has correctly come to
C the conclusion that the appellant having failed to raise the plea
  of jurisdiction before the Arbitral Tribunal cannot be permitted
  to raise for the first time in the Court. Earlier also, this Court
  had occasion to consider a similar objection in Bharat Sanchar
  Nigam Limited and another versus Motorola India Private
D Limited ((2009) 2 SCC 337]. Upon consideration of the
  provisions contained in Section 4 of the Arbitration Act, 1996,
  it has been held as follows:

        39. Pursuant to section 4 of the Arbitration and Conciliation
        Act, 1996, a party which knows that a requirement under
E
        the arbitration agreement has not been complied with and
        still proceeds with the arbitration without raising an
        objection, as soon as possible, waives their right to object.
        The High Court had appointed an arbitrator in response
        to the petition filed by the appellants (sic respondent). At
F
        this point, the matter was closed unless further objections
        were to be raised. If further objections were to be made
        after this order, they should have been made prior to the
        first arbitration hearing. But the appellants had not raised
        any such objections. The appellants therefore had clearly
G       failed to meet the stated requirement to object to
        arbitration without delay. As such their right to object is
        deemed to be waived.

         19. In our opinion, the obligations are fully applicable to the
H
UNION OF INDIA v. PAM DEVELOPMENT PVT. LTD. 1077


facts of this case. The appellant is deemed to have waived the       A
right to object with regard to the lack of the jurisdiction of the
Arbitral Tribunal.

     20. We, therefore, see no merit in the appeal and the same
is hereby dismissed.                                                 B

       No costs.

D.G.                                         Appeal.dismissed.