A recent judgement by the Supreme Court of India, titled Quippo Construction Equipment Limited  v. Janardan Nirman Pvt. Limited (AIR 2020 SC 2038), may have given some people the wrong ideas – or so it seems going by some of the reportage and online conversations surrounding it.

What the two-judge bench in Quippo has held is that an objection as to the venue of arbitration must be taken before arbitral tribunal itself and if not so taken, the right to raise such objection stands waived. The award debtor in that case did not so object, choosing to not participate in the arbitral proceedings instead and suffering an adverse ex parte award in the process.

Unfortunately, some people mistakenly see Quippo as laying down that all objections as to jurisdiction are to be deemed waived in case of non-participation in arbitral proceedings.

Non-Derogable Provisions Cannot be Waived

These people overlook the distinction between provisions that parties can derogate from and those that they cannot derogate from. The significance of this distinction becomes clear when one reads section 4 of the Arbitration and Conciliation Act, 19964.Waiver of right to object.—A party who knows that— (a) any provision of this Part from which the parties may derogate, or (b) 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 withoutundue delay or, if a time limit is provided for stating that objection,... More, which specifically deals with the waiver of the right to object. It speaks of only two aspects in the context of which a party is to be deemed to have waived its right to object: (i) a provision of Part I of the Act from which the parties may derogate from, or (ii) any requirement under the arbitration agreement.

It stands to reason, then, that there exists a second category of provisions within Part I that parties cannot derogate from. If one persists a little longer with this train of logical thought, one arrives at an inescapable conclusion, which is that these non-derogable provisions cannot be waived in the manner provided in Section 4.

Derogable vs. Non-Derogable Provisions

In Quippo, the Court found the provision relating to the place of arbitration to be something the parties could derogate from, especially in a domestic arbitration. It reasoned that while the place of arbitration tends to assume significance in an international arbitration for its utility in determining the curial law (procedural law that governs the arbitral proceedings), it holds no such value in case of domestic arbitrations which do not involve any such determination.

That the Quippo bench held non-participation in arbitral proceedings to be waiver under Section 4 is noteworthy, though utterly unsurprising. Granted, Section 4 is silent on waiver in context of ex parte arbitral proceedings, but interpreting said silence to mean that the provision does not apply to such proceedings could lead to disastrous outcomes. Such an interpretation could allow scheming parties to evade arbitral proceedings, only to have any ex parte awards against them overturned in Section 34 proceedings based on trivial objections to do with entirely derogable provisions. The ensuing delay would completely frustrate the object of the Act.

The Quippo bench relied upon Narayan Prasad Lohia vs. Nikunj Kumar Lohia and others, (2002) 3 SCC 572 to bring home the distinction between derogable and non-derogable provisions. While not a case involving non-participation, Lohia too involved a question of waiver of right to object. The challenge to the award in that case was centred on the fact that the proceedings had been conducted by an even number of arbitrators in contravention of Section 10.

But the Supreme Court rejected this argument. Holding Section 10 to be a derogable provision for the purposes of Section 4, it took the view that the parties challenging the award had waived the right to object to the numerical composition of the tribunal by not raising such objection in the time prescribed under Section 1616.Competence of arbitral tribunal to rule on its jurisdiction.—(1) The arbitral tribunal may rule on its own jurisdiction, including rulingon any objections with respect to the existence or validity of the arbitration agreement, and for that purpose,— (a) an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of thecontract;.... Further, the Court held the right to object to have been lost for good, disallowing its resurrection under Section 34(2)(a)(v).

Takeaway

The upshot of this piece can be summed up thus:

• Section 4 makes a distinction between provisions of Part I that parties can derogate from and those they cannot derogate from.
• Where an objection pertains to derogable provisions (those to do with numerical composition of tribunal, venue in domestic arbitrations, etc.), it must be raised within the time limit (if any) provided for doing so. Even if there is no time limit, the objection must be raised without delay.
• Non-participation in arbitral proceedings can also in appropriate cases be deemed to be a waiver of such right to object, but not where the objection pertains to a non-derogable provision that goes to the very root of the matter (say if a party unilaterally appoints an arbitrator).
• Waiver of right to object operates for good. The objection cannot be raised in proceedings under Section 34.