Narayan Prasad Lohia vs. Nikunj Kumar Lohia and others

( In terms of Section 10 the number of arbitrators “shall not be an even number”. The parties to a dispute appoint two arbitrators and participate in the arbitral proceedings. Is the award delivered by the two arbitrators valid in law )
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Case Reference :
Civil Appeal No.1382 of 2002, decided on 20/2/2002

Judges :
Justice G.B.Pattanaik, Justice S.N.Phukan and Justice S.N.Variava

Parties :
Narayan Prasad Lohia (Appellant) Vs Nikunj Kumar Lohia and others (Respondents)
Question of Law :
The parties to a dispute appoint two Arbitrators to adjudicate their dispute and participate in the arbitration proceedings. The two Arbitrators pass an award thereafter. In terms of Section 10 of the Act of 1996 there cannot be even number of Arbitrators in an arbitration. Is the award passed by the two Arbitrators valid in law?
 
Gist of the Case:
The Appellant and the Respondents are family members who had disputes and differences in respect of family business and properties. They agreed on 29/9/1996 to have their disputes and differences resolved through two persons. The parties made their respective claims before these two persons. All parties participated in the proceedings. On 6/10/1996 an award was passed by the said two persons.
The 1st and 2nd Respondents challenged the award on the ground that the arbitration was by two arbitrators whereas under the Act of 1996 there cannot be an even number of arbitrators. A Single Judge of the Kolkata High Court set aside the award dt.6/10/1996. The appeal filed in the High Court was also dismissed. Hence this appeal to the Supreme Court.
In terms of Section 16 of the Act of 1996, the Arbitral Tribunal can rule on any objection with respect to existence or validity of the arbitration agreement. It has been held by a Constitution Bench of the Supreme Court in the case of Konkan Raily Corpn.Ltd. vs. Rani Construction Pvt.Ltd. that the authority of the Arbitral Tribunal under Section 16 is not confined to the width of its jurisdiction but also goes to the root of its jurisdiction. It is no longer open to contend that, under Section 16, a party cannot challenge the composition of the Arbitral Tribunal before the Arbitral Tribunal itself. However, such a challenge under Section 16(2) must be taken not later the submission of the statement of defence. Section 16(2) makes it clear that such a challenge can be taken even though the party may have participated in the appointment of the arbitrator and/or may have himself appointed the arbitrator. Needless to state that a party would be free, if it so chooses, not to raise such a challenge. Thus a conjoint reading of Sections 10 and 16 shows that an objection to the composition of the Arbitral Tribunal is a matter which is derogable. It is derogable because a party is free not to object within the time prescribed in Section 16(2). If a party chooses not to so object there will be a deemed waiver under Section 4. Thus Section 10 has to be read along with Section 16 and is, therefore, a derogable provision.
The Supreme Court held that arbitration being a creature of agreement between the parties, it would be impossible for the legislature to cover all aspects. A reading of Section 11 would show that it only provides for appointment of arbitrators in case where there is only one arbitrator or three arbitrators. By agreement parties may provide for 5 or 7 arbitrators. If they do not provide for a procedure for their appointment or there is failure of the agreed procedure, then Section 11 does not contain any provision for such a contingency. Can this be taken to mean that the agreement of the parties is invalid? The answer obviously has to be in the negative. Undoubtedly, the procedure in Section 11 will apply mutatis mutandis apply for appointment of 5 or 7 arbitrators. Similarly, even if parties provide for appointment of only two arbitrators, that does not mean that the agreement becomes invalid. Under Section 11(3) the two arbitrators should then appoint a third arbitrator who shall act as the presiding arbitrator. However, there is no reason why the two arbitrators cannot appoint a third arbitrator at a later stage, i.e. if and when they differ. This would ensure that on a difference of opinion the arbitration proceedings are not frustrated. But if the two arbitrators agree and give a common award there is no frustration of the proceedings. Thus there is no waste of time, money and expense if a party, with open eyes, agrees to go to arbitration of two persons and then participates in the proceedings.
An arbitral award can be challenged on limited grounds provided under Section 34 of the act of 1996. Section 34(2) (a)(v) only applies if “the composition of the Arbitral Tribunal or the arbitral procedure was not in accordance with the agreement of the parties”. Thus if the composition of the Arbitral Tribunal or the arbitral procedure is in accordance with agreement of the parties, there can be no challenge under the provision. Even in a case where the composition of the Arbitral Tribunal or the arbitral procedure is not in accordance with the agreement of the parties the right to challenge the award is restricted. The challenge can only be provided when the agreement of the parties is in conflict with a provision of Part I of the Act of 1996 from which the parties cannot derogate. Section 34 does not permit challenge to an award merely on the ground that the composition of the Arbitral Tribunal was in conflict with the provisions of Part I. This also indicates that Section 10 is a derogable provision.
The judgements of the learned Single Judge and the Division Bench of Kolkata High Court were set aside.

 
Citation :
(2002) 3 SCC 572

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