Quippo Judgement: Clarification By The Supreme Court On Waiver Of Right To Object And Significance Of Place Of Arbitration In Domestic Arbitration

On 29 April 2020, the Hon'ble Supreme Court of India (the "Supreme Court") delivered its judgement in Quippo Construction Equipment Ltd. vs. Janardan Nirman Pvt. Ltd. (Civil Appeal No. 2378 of 2020; hereinafter "Quippo"). In Quippo, the Supreme Court held that non-objection by a party in respect of facts or issues during arbitral proceedings, where the party could legitimately have disputed such facts or issues before the arbitral tribunal, will constitute a deemed waiver by such party in respect of all such facts or issues. Notably, the Supreme Court also held that the "place of arbitration" in domestic arbitration does not have special significance, as compared to the "place of arbitration" in an international commercial arbitration, since in domestic arbitration, the substantive and curial law are the same.

Factual Background

The Respondent/Janardan NirmanPvt. Ltd. ("Janardan") is engaged in the business of infrastructure development activities. Janardan approached the Appellant/Quippo Construction Equipment Ltd. ("Quippo Construction") to provide on rent a number of piling rigs (together with the crew/operator) at work sites as instructed by Janardan. From 2010-2011, multiple agreements ("the agreements") were executed by the parties for the supply of such rigs and crew by Quippo Construction at the sites of Janardan at Barh in Bihar, and Durgapur and Malda in West Bengal. Quippo Construction provided the rigs and the crew to Janardan at the designated work sites in accordance with the agreements, but Janardan defaulted in making payments to Quippo Construction as required by the agreements. Exasperated with Janardan's failure to pay, Quippo Construction sent a notice in 2012 for payment of the outstanding dues. In its reply, Janardan accepted the hiring of the rigs in accordance with the agreements but failed to make the payments that were due. As a result, in 2012, Quippo Construction sent a notice to Janardan invoking arbitration for non-payment of due amounts and appointed a Sole Arbitrator in New Delhi in accordance with the agreements with Janardan.

After receiving the notice invoking arbitration, Janardan responded by denying the existence of any agreements with Quippo Construction. Interestingly, in 2012, it had filed a suit against Quippo Construction before the Trial Court, Kolkata, praying, inter alia, for a declaration that the agreements are null and void.  Janardan also sought a permanent injunction restraining Quippo Construction from relying on the arbitration clauses in the agreements. Thereafter, Quippo Construction filed an application under Sections 5 and 8 of the Arbitration and Conciliation Act, 1996 (the "Act") before the Trial Court, Kolkata for referring the dispute to Arbitration. In 2014, the Trial Court, Kolkata, after relying upon the original agreements, while allowing Quippo Construction's application and dismissing Janardan's suit, held that it had no jurisdiction to entertain the dispute and referred the dispute to arbitration.

In 2014, Janardan filed an appeal before the Appellate Court, Kolkata against the judgement of the Trial Court, Kolkata. While the dispute was pending before the Appellate Court, Janardan repeatedly sought adjournments before the Sole Arbitrator without formally participating in the proceedings. The Sole Arbitrator initially allowed the adjournments sought by Janardan in letters, but since no stay order was passed by the Appellate Court,the Sole Arbitrator conducted an ex-parte proceeding.  The proceeding was ex-partebecause, despite notice being issued to Janardan by the Sole Arbitrator, Janardan did not participate in the arbitration proceeding.

In 2015, the Sole Arbitrator passed a common ex-parte award (the "arbitral award") accepting the claims of Quippo Construction against Janardan. Janardan then filed a petition under Section 34 of the Act against the arbitral award before the Alipore Court, claiming non-existence of the agreements and disputed the venue of the arbitration based on the fact that at least under one of the agreements the venue of the arbitration was in Kolkata (and not in New Delhi, where the arbitration proceeding was conducted). In 2016, the Appellate Court dismissed the appeal filed by Janardan. Janardan, thereafter, filed a revision petition against the order of Appellate Court before the Calcutta High Court, which was dismissed.

Not satisfied with the order of the Calcutta High Court, Janardan filed an SLP before the Supreme Court in 2017, which was also dismissed. The Supreme Court, however, observed that Janardan could raise the plea of genuineness of the agreements in a petition filed under Section 34 of the Act before a competent court.

After the order of the Supreme Court, Janardan re-asserted its rights in the Section 34 petition filed before the Alipore Court, which was dismissed. The Alipore Court held that it did not have the jurisdiction to entertain the dispute. Following the judgement of the Supreme Court in Indus Mobile Distribution Pvt. Ltd. v. Datawind Innovations Pvt. Ltd.(2017) 7 SCC 678, the Alipore Court held that the petition under Section 34 of the Act could be entertained by the courts of competent jurisdiction where the arbitral award was passed (that is, in New Delhi), but not in Kolkata.

Janardan filed an appeal under Section 37 of the Act before the Calcutta High Court, which was allowed in 2019. The High Court noted that since the parties, as evident from the cause title of the appeal under Section 37 of the Act, were amenable to the jurisdiction of the Alipore Court in the proceedings, it directed the Alipore Court to adjudicate the dispute. Quippo Construction thereafter filed an SLP before the Supreme Court.

Issues before the Supreme Court

1. Whether a party, which at no stage raised objection(s) before the Sole Arbitrator and let the arbitral proceedings culminate in an ex-parteaward, has waived its right(s) to raise any objection(s)?
2. Whether a party, which during the arbitral proceedings did not raise the objection(s) against the jurisdiction of the Sole Arbitrator and venue of the arbitral proceedings, has waived such objection(s)?
3. Significanceof "place of arbitration" in domestic arbitration proceedings.

Contentions of Quippo Construction

Quippo Construction submitted before the Supreme Court that the Trial Court, Kolkata allowed the Sections 5 and 8 applications of Quippo Construction and referred the dispute to Arbitration. This decision attained finality after the dismissal of the SLP by the Supreme Court.  It was further submitted that since Janardan did not participate in the arbitral proceedings, did not raise the objection on the issue of jurisdiction or of venue before the Sole Arbitrator, Janardan had waived its right to object on the issues of jurisdiction and venue of arbitration.

Contentions of Janardan

Janardan submitted that since Kolkata was the venue for the arbitration in one of the agreements, every arbitration agreement should be considered independently. It relied on the judgement of the Supreme Court in DuroFelguera S.A. v. Gangavaram Port Ltd.(2017) 9 SCC 729 where there were six arbitral agreements, and each was subject to a separate and independent arbitral proceeding.

Findings of the Supreme Court

The Supreme Court relied on Section 4 (waiver of right to object), Section 16 (competence of arbitral tribunal to rule on its jurisdiction) and Section 20 (place of arbitration) of the Act. The Supreme Court also relied on Section 10 (number of arbitrators; should not be even) of the Act and the judgement of the Supreme Court in Narayan Prasad Lohia v. Nikunj Kumar Lohia&Ors.(2002) 3 SCC 572, which considered the scope of waiver of the right to object under Section 4 of the Act. In Narayan Prasad(supra),the party did not raise an objection under Section 16 of the Act on the number of arbitrators appointed (2 in that case) before the arbitral tribunal and thus waived its right to object.

The Supreme Court started by observing that DuroFelguera(supra) was an international commercial arbitration and a dispute arising under Section 11(6) of the Act. In the current dispute, the agreements contemplated domestic institutional arbitration. The Supreme Court noted that the agreements were of a similar nature and the only distinction was that in at least one of the agreements, Kolkata was the place of arbitration. The Court held that the "place of arbitration" in domestic arbitration willnot have special significance,as opposed to a situation in international commercial arbitration because, in a domestic arbitration, the substantive and curial law remain the same.      The Supreme Court expressly noted that, at no stage, did Janardan raise any objections before the Sole Arbitrator in respect of the venue or jurisdiction of the arbitral tribunal.  To the contrary, Janardan let the arbitral proceedings conclude and culminate in an arbitral award. Janardan could have raised objections before the Sole Arbitrator that each agreement should have been adjudicated upon independently and could have also asserted that the arbitration proceedings should be conducted in Kolkata. However, since Janardan failed to participate in the proceedings before the Sole Arbitrator and did not raise any objection on the jurisdiction of the arbitrator and/or the scope of his authority or the venue, Janardan was deemed to have waived all its objections. The Supreme Court held that Janardan was now precluded from making any submission(s) or objection(s) with respect to the jurisdiction of the Sole Arbitrator and venue of the arbitration. The Supreme Court also stated that the observation of the Calcutta High Court that the parties were amenable to the jurisdiction of the Alipore Court was not a decisive factor while determining the jurisdiction of a Court for a petition filed under Section 34 of the Act. The Supreme Court accordingly set aside the order of the Calcutta High Court.

Conclusion

The judgement of the Supreme Court in Quippohas settled the law that if any party to a dispute wishes to raise objection(s) under Section 16 of the Act on issue(s) that are before an arbitral tribunal, then such objections must be raised before the arbitral tribunal itself and not separately in a court of law. And, if a party fails to raise such objection(s) before the arbitral tribunal, then such party, by virtue of Section 4 of the Act, will be deemed to have waived its right to object altogether.

In Quippo, the Supreme Court also drew a distinction between international commercial arbitrations and domestic arbitrations, and dismissed the submissions of Janardan that relied upon DuroFelguera (supra). Distinguishing the facts of DuroFelguera (which was an international commercial arbitration), the Supreme Court held that that the arbitral proceeding in Quippo was a domestic arbitration and in such proceedings, the "place of arbitration" will not have special significance since in domestic arbitration the substantive and curial law are the same.By observing that the amenability of the parties to the jurisdiction of the Alipore Court was not a decisive factor while determining the jurisdiction of a Court for a petition under Section 34 of the Act, the Supreme Court implicitly endorses its ruling in Indus Mobile (supra). In Indus Mobile, the Supreme Court held that the courts having territorial jurisdiction over the seat of the arbitration would have supervisory powers (eg. petition under Section 34 of the Act etc.) over the arbitration (New Delhi in Quippo).

By holding that parties waive their right(s) if they do not object during the arbitral proceedings to the venue of the proceeding, the Supreme Court's Quippo judgement highlights the objective of the Act that arbitral proceedings must be time bound to effectively serve the original expectations of the parties when they selected arbitration as a dispute resolution mechanism in their contract, and justice should not be delayed by parties prolonging the dispute resolution process through dilatory litigation strategies. This ruling will restore faith of parties in the arbitral process, the essence of which is speed, confidentiality, procedural flexibility, integrity and the timely enforcement of an arbitral award. Importantly, for all the right reasons, the Supreme Court in Quippo also explains why venue in a domestic commercial arbitration under the Act does not have the same significance as it does for international commercial arbitrations thereby seriously limiting the ability of opportunistic parties to engage in forum shopping.