Objection To Tribunal's Jurisdiction U/S 16 Of Arbitration Act Must Be Raised Before Or At Time Of Statement Of Defence: Himachal Pradesh HC

Brief Facts

Objections preferred by the appellants under Section 34 of the Arbitration and Conciliation Act, 1996 (in short 'the Act') against the award passed by the learned Arbitrator on 15.09.2017 were dismissed by the learned District Judge on 15.06.2022. Feeling aggrieved, recourse has been taken by the appellants to Section 37 of the Act.

An agreement was executed on 28.04.2007 between the respondent/claimant and the appellants for construction of balance work of Tara Devi Gumber Road in Km 0/0 to 11/720 (SH: Formation cutting including R/walls, Soiling, M/T cross drainage, side drain and parapets). The agreement contained Clause No.25 for referring the dispute/differences, which may arise between the parties, to arbitration.

Differences arose between the parties. Accordingly, the Superintending Engineer, Arbitration Circle, HPPWD Solan was appointed as the Sole Arbitrator for deciding and making the award regarding claims and disputes made by the respondent/claimant and also the counter claim preferred by the appellants.

Learned Arbitrator passed the award on 28.11.2013, allowing Rs.13,75,233/- on account of price escalation under Claim No.1 of the respondent/claimant. The respondent/claimant did not press claim No.2, which was treated as withdrawn. No compensation was awarded to the respondent/claimant for claim No.3. Counter claim preferred by the appellants was also not allowed.

The respondent/claimant filed an appeal against the award dated 28.11.2013 under Section 34 of the Act before the learned District Judge. This appeal (Arbitration Case No.1-S/2 of 2014) was decided on 29.09.2016. The case was remanded back to the learned Arbitrator for decision afresh in accordance with law.

Learned Arbitrator again entered into the reference on 17.10.2016. Award was finally passed on 15.09.2017. The respondent/claimant was awarded Rs.13,71,829/- on account of price escalation against Claim No.1.

The appellants preferred objections under Section 34 of the Act against the award dated 15.09.2017 before the learned District Judge, Shimla. The objections were dismissed on 15.06.2022.

Contentions

The appellant submitted that the learned Arbitrator as well as learned District Judge fell into error in allowing Claim No.1 of the respondent/ claimant by awarding it a sum of Rs.13,71,829/- for price escalation. The respondent had itself given a written undertaking that it would not claim 'anything extra' on account of work executed.

That the words 'anything extra' would include the price escalation claim. Therefore, the respondent/claimant was not entitled to price escalation in view of it having given an undertaking for not claiming 'anything extra'.

That the learned Arbitrator had no jurisdiction to determine respondent's claim under Clause 10(CC) of the contract with respect to price escalation.

Per contra, the respondent submitted that It has been correctly held that 'anything extra' does not mean that price escalation has been excluded. Once the Arbitrator has taken a view, which is a plausible view, there is no reason to give another interpretation, that too under Section 37 of the Act.

That the question of jurisdiction of Arbitrator to determine the claim under Section 10(CC) of the contract was never raised by the appellants before the learned Arbitrator. Hence, in view of Section 16 read with Section 4 of the Act, the appellants are now debarred in law from raising the issue of jurisdiction.

Court's Analysis

The court, at the outset, referred to the Supreme Court judgment in Indian Oil Corporation Limited Versus Shree Ganesh Petroleum Rajgurunagar (2022) wherein the scope of examination under section 37 of the Arbitration Act was discussed.

The court observed that the Court does not sit in appeal over the award made by an Arbitral Tribunal. The Court does not ordinarily interfere with interpretation made by the Arbitral Tribunal of a contractual provision, unless such interpretation is patently unreasonable or perverse. Where a contractual provision is ambiguous or is capable of being interpreted in more ways than one, the Court cannot interfere with the arbitral award, only because the Court is of the opinion that another possible interpretation would have been a better one.

Based on the above, the court observed that the respondent/claimant cannot be held to be debarred from claiming the price escalation admissible to it under Clause 10(CC) of the contract executed between the parties. The view taken by the learned Arbitrator that the affidavit of the respondent/claimant that it would not claim 'anything extra' cannot debar it from claiming benefits accruing to it under Clause 10(CC) of the Contract as 'anything extra' would mean extraneous to the contract.

The court held that since a plausible view on appreciation of facts of the case was taken by the Arbitrator, the findings need not be interfered with under section 37 of the Arbitration Act.

The court further rejected the contention with respect to the tribunal not having jurisdiction to decide the claim under the contract and observed that Section 16 of the Act deals with the competence of the Arbitral Tribunal to rule on its jurisdiction. In terms of Sub-Section (2) of Section 16, the plea that the Arbitral Tribunal does not have jurisdiction, has to be raised not later than the submission of statement of defence.

The court referred to the Supreme Court judgment in MSP Infrastructure Limited Versus Madhya Pradesh Road Development Corporation Limited (2015) wherein it was held that a party is bound by virtue of Section 16(2) to raise any objection it may have to the jurisdiction of the Tribunal before or at the time of submission of its statement of defence, and at any time thereafter it is expressly prohibited.

The court further observed that if the objections are not raised within the time period provided under section 16, they shall be deemed to have been waived as per section 4 of the Arbitration Act therefore cannot be raised before the court under section 37 of the Arbitration Act. In the present case, admittedly no such objection was taken by the appellants at the time of submission of their defence before the learned Arbitrator.

The court concluded that no interference is called for with the impugned award dated 15.09.2017 passed by the learned Arbitrator, as affirmed by the learned District Judge on 15.06.2022. Accordingly, the present appeal was dismissed.

Case Title: State of H.P. and another v. M/s Gurcharan Industries

Citation: 2024 LiveLaw (HP) 71

Case Reference: Arb. Appeal No.38 of 2024

Judgment Date: 05/11/2024

Click Here to Read/Download The Order