This case is a part of our Annual Arbitration Review 2020.
Citation: O.M.P. (COMM) 44/2017
Court: Delhi High Court
Coram: Prateek Jalan, J.
Date: 21st May 2020
Keywords: Arbitrator's Jurisdiction, Consultancy Fee.
A party cannot participate in the arbitral proceedings without demur and then seek to assail the validity of the proceedings in the face of an unfavorable award.
The Museum and the Architects thus entered into a contract dated 17th January 1991 at Andhra Pradesh Bhawan, New Delhi, for designing, making detailed architectural drawings, and supervision of construction of additional buildings of the Museum. The Architects were required to complete designs and supervise the construction undertaken by National Building Construction Corporation. On 11th August 1993, the architects submitted a revised estimated cost for construction which was 7.52 crores, and this was accepted by the museum. The parties were unable to agree on the amount due to the Architects under the contract. The Architects contended that the work undertaken under the contract was more extensive than the original proposal resulting in the cost of work increasing from the proposed estimate of 5.94 crores to 10.52 crores. The Museum contended that the Architects were only entitled to remuneration based on the estimate of 5.94 crores, which they had submitted at the stage of the design competition. In the interregnum, the Architects initially constituted as a partnership firm had reconstituted into a private limited company by the name of Design Team Consultants. It is this company that is claimed in the arbitration proceedings and is the respondent in the present petition. The Museum resisted the claim on this ground also, arguing that the takeover of the Architects’ firm by the company could not relate to the contract, which had expired on 16 January 1996. The Architects contended, on the other hand, that the company had taken over all the assets and liabilities of the erstwhile firm and that this was conveyed to the Museum by way of the communication dated 19 September 1996.
The disputes led to the invocation of arbitration by the Architects and an application filed by them before this Court under Section 11 of the Act. By an order dated 27th August 2002, this Court appointed Justice R.P. Gupta, a former Judge of this Court, as the sole arbitrator. The learned arbitrator awarded a consultancy fee in favor of the Architects, reckoned upon the final cost estimate of ₹7.52 crores. The balance amount awarded under this head was computed as ₹8,96,315/-. In addition, the learned arbitrator directed a refund of the security money deducted from the consultancy fee paid to the respondent [₹2,13,840/-] and from the supervision charges [₹49,540/-]. Interest was awarded, not at the rate of 24% p.a. as claimed by the Architects, but at the rate of 6% p.a. An award was therefore made in favor of the Architects, for the sum of ₹18,10,706/- [with further interest at 6% p.a.], and costs of ₹96,000/-. The present petition has been filed to set aside the award under Section 34 of the Arbitration and Conciliation Act, 1996 because the arbitrator had exceeded his jurisdiction by deciding claims other than the claim for consultancy fees.
Whether an objection pertaining to the jurisdiction of the arbitrator can be raised for the first time in proceedings under Section 34 of the Arbitration Act, if not raised previously before the Arbitral Tribunal?
The principal defense taken by the Museum was that the Architects (as a company) had no locus standi to seek adjudication of disputes under the contract as the company could not be said to be an assignor of the Architects’ firm. The Delhi High Court, in the instant case, distinguished the ratio laid down in the case of Lion Engineering v. State of Madhya Pradesh, wherein it was held by the Supreme Court that though the plea regarding the jurisdiction of the arbitrator being circumscribed by a special statute had not been taken before the arbitrator, it could still be urged before the Court under Section 34 of the Arbitration Act. The Delhi High Court held that the challenge is not based upon any inherent lack of jurisdiction in the arbitrator but upon the reference order itself; in such a case, the party concerned cannot be permitted to participate in the arbitration proceedings, contest the claim on merits, and thereafter, raise a jurisdictional objection. As per the Court, the underlying difference stems from the concept of consensual dispute resolution itself. Even in a case where a particular dispute is referred to the arbitrator, and the claimant thereafter seeks adjudication of other claims as well, if the respondent does not object, it can be taken to have agreed to submit the subsequent claims also to arbitration. The Court also noted that if there were a statutory bar to submission of the additional claim, akin to the situation in Lion Engineering (or perhaps some other ground relatable to public policy), the situation might have been different. However, where the jurisdictional objection is capable of waiver by the affected party, the failure to raise it before the arbitrator signifies consent to the arbitrator’s jurisdiction. Further while relying on Associate Builders v. Delhi Development Authority held that the Court would not be justified in setting aside an award unless it is based on no evidence at all or on a reading of evidence (or an interpretation of the contract) which is irrational or perverse, in the sense that it draws a conclusion which no reasonable person could have reached. The award in the present case did not suffer from any such infirmity. A party thus cannot, in such a case, participate in the proceedings without demur and then seek to assail the validity of the proceedings in the face of an unfavorable award. The Court thus dismissed the application for setting aside the award.
Since the Ld. Arbitrator had not exceeded his jurisdiction while giving the award, the Court rejected the petition and did not interfere with the award dated 26th December 2018.