Section 4 of The Arbitration Act II

Konkan Railway Corporation v. Rani Construction (P) Ltd., (2002) 2 SCC 388 held, Section 16 empowers the Arbitral Tribunal to rule on its own jurisdiction; the Arbitral Tribunal’s authority under Section 16 is not confined to the width of its jurisdiction, but goes to the very root of its jurisdiction. Konkan Railway was decided on 30th January, 2002.

Three Judges delivered Narayan Prasad Lohia v. Nikunj Kumar Lohia, (2002) 3 SCC 572 on 20th February, 2002. K.K. Venugopal [Present Attorney General of India], much like Ashok Desai [Former Attorney General of India] in M.M.T.C. Limited v. Sterlite Industries, AIR 1997 SC 605,  had submitted, Section 10 is a mandatory provision which cannot be derogated; even though parties are free to determine the number of Arbitrators, such number cannot be an even number; an Arbitration Agreement which permits to appoint an even number of Arbitrators would be invalid; if there are an even number of Arbitrators, there is a high possibility, they may differ; this would result in a colossal waste of time, money and energy. Supreme Court held, Konkan Railway is binding; one can challenge the composition of the Arbitral Tribunal before the Arbitral Tribunal, even if there is participation in the appointment of the Arbitrator; a party is also free not to raise such a challenge; it will be a deemed waiver of objection under Section 4 if the objection is not taken before the Arbitral Tribunal itself, or within time prescribed under Section 16(2); Section 10 has to be read along with Section 16; a conjoint reading shows, an objection to the composition of the Arbitral Tribunal is derogable; even if parties provide for appointment of Two Arbitrators, the Arbitration Agreement doesn’t become invalid; under Section 11(3) the Two Arbitrators should then appoint a Third Arbitrator who shall act as the Presiding Arbitrator; such an appointment should preferably be made at the beginning; there is no reason why the Two Arbitrators cannot appoint a Third Arbitrator at a later stage, if and when they differ; if the Two Arbitrators agree and give a common Arbitral Award, it would prevail even if the Third Arbitrator, presuming there was one, had differed; thus, there is no waste of time, money and expense.

Recently, Supreme Court in Quippo Construction Equipment Limited v. Janardan Nirmal Pvt. Ltd., [Civil Appeal No. 2378 of 2020] cited Narayan Prasad Lohia. Three Judge Bench of this Court in Narayan Prasad Lohia v. Nikunj Kumar Lohia, (2002) 3 SCC 572 considered the amplitude and applicability of Section 4 of the Act.” Section 10 is indeed a derogable provision and if no objections are raised to the composition of the Arbitral Tribunal, as provided in Section 16, the concerned party would be deemed to have waived its right to object. Hon’ble Chief of India, Hon’ble Justice A.N. Ray in P. Das Muni Reddy v. P. Appa Rao, (1974) 2 SCC 725 held, “the essential element of waiver is that there must be a voluntary and intentional relinquishment of a right.” Thus, the statutory requirement of an odd number of Arbitrators can be departed from and an Arbitral Award by an even number of Arbitrators can be valid and binding.

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An interesting story.

The Delhi Judicial Service (Preliminary) Examination, conducted on 18.12.2011, comprised of 200 objective type questions with answer options. There was a question, “Arbitration Agreement providing for Arbitration of Four Arbitrators is, under The Arbitration & Conciliation Act, 1996, to be construed as an Agreement for Arbitration by: (1) Sole Arbitrator (2) Five Arbitrators (3) Three Arbitrators. (4) Four Arbitrators Only”. The answer key reflected ‘(1) Sole Arbitrator’ as the correct option.  Delhi High Court in Gunjan Sinha Jain v. Registrar General, High Court of Delhi, 188 (2012) DLT 627 considered, if a determination of the number of Arbitrators is not made at all or is not made in terms of Sub-Section (1) of Section 10, the statutory stipulation in Sub-Section (2) is, the Arbitral Tribunal shall consist of a Sole Arbitrator. It was observed, Learned Single Judge in Dr. Deepashree v. Sultan Chand, AIR 2009 Delhi 85 noted Narayan Prasad Lohia and distinguished the same by holding, it was a Post-Arbitral-Award matter; the provisions of Section 10(2) were not directly in issue. Finally, it was held, “from the standpoint of a candidate in the said DJS exam, he/she is to be guided by the law as it stands. Consequently, the option ‘(1) (Sole Arbitrator)’, as shown in the Answer Key, would have to be regarded as correct.” While it was said: ‘Arbitration Agreement providing for Arbitration of Four Arbitrators is, under The Arbitration & Conciliation Act, 1996, to be construed as an Agreement for Arbitration by: (1) Sole Arbitrator’, the question remains, who is construing? An objection to the composition of the Arbitral Tribunal cannot be presupposed. The words ‘failing the determination’ has been completely overlooked. If a challenge is raised, the Four Arbitrators in the Arbitral Tribunal, after assessing submissions, may include a Fifth Arbitrator! It may also be, even before Arbitral Proceedings, the Arbitration Agreement is altered providing for Arbitration of Three Arbitrators or Two. How could Gunjan Sinha Jain have calculated these possibilities? Therefore, ‘Arbitration Agreement providing for Arbitration of Four Arbitrators is, under The Arbitration & Conciliation Act, 1996, to be construed as an Agreement for Arbitration by: (4) Four Arbitrators Only’. 159