Narayan Prasad Lohia vs Nikunj Kumar Lohia & Ors

The present case analysis has been done by Vanshika Arora.

Case Number

Appeal (civil) 1382  of  2002

Equivalent Citation 

2002 (1) RAJ 381 (SC)

Bench: 

Hon’ble Justice GB Pattanaik, Hon’ble Justice SN Phukan, Hon’ble Justice SN Varivan 

Date of Judgment: 

20th February 2002

Relevant Act 

Arbitration and Conciliation Act, 1966

Relevant Sections 

Sections 4, 5, 10, 11, 16, 34 

Facts of the Case

The Appellant and Respondent had a family dispute over business and properties. For which two arbitrators were hired (Mr. Pramod Kumar Khaitan, and Mr.Sardul Singh Jain). An award was passed by the two arbitrators on 6th October 1996. On 22nd December 1997, the first respondent filed an application in Calcutta High Court for setting aside the award. The contention was that, under Section 10 of The Arbitration and Conciliation Act, 1966, an even number of arbitrators cannot be present. Since in the present matter, two arbitrators were present, it was contended that arbitration was void and invalid. On the same line of reasoning, it was also contended that the award is henceforth also void and invalid. A single judge of the Calcutta HC set aside the award on 17th November 1998, subsequently, an appeal dated 18th May 2000 was also dismissed. Thereon, the matter was bought before the SC.

Issues before the Court

Whether Section10 is a non-derogable provision in Arbitration? Whether a mandatory provision of the Act can be waived by the parties? 

Ratio Decidendi 

The appellant contended that Section 10 is a mandatory provision of the Act. In the present matter, the Arbitral tribunal was not validly constituted, hence it should be void and invalid. Moreover, if the constitution of the arbitrators is invalid, it should also render the award void. The appellant also contended that Section 16 does not provide for any challenge of the constitution of the Arbitration Tribunal. Therefore, an invalidly constituted tribunal deems lack of jurisdiction. It was also contended that in the case of an even number of arbitrators, they may have conflicting opinions, which may result in a fresh arbitration altogether. This could be a waste of time and energy for both parties, and an infringement of public policy. Hence, Section 10 should be considered a non-derogable provision. In the court’s opinion, that the question, whether Section 10 is non-derogable would depend on whether a party has a right to object to the composition of the arbitral tribunal, and at what stage. 

The decision of the Court

 The court held the contention of Section 10 is a non-derogable provision, unacceptable. Since it cannot be said that an arbitration agreement becomes invalid when only two arbitrators are appointed. In such a case, Section 11(3), the two arbitrators can appoint a third one. The court held that an appointment of the third arbitrator can be done at a later stage, i.e when the two differ, and need not be mandatorily done at the initial stages of the agreement. Further, the court held that an award can only be set aside under the provisions of Sections 12, 13, 16, and 34. An award cannot be set aside if the composition of the arbitral tribunal and proceedings are in accordance with the agreement between the parties. The right to challenge an award, in case tribunal and proceedings are not in accordance, is also restricted. In a sense that, even if the composition of the arbitral tribunal or the arbitral procedure is not in accordance with the agreement of the parties but if such composition or procedure is in accordance with the provisions of the Act, then the party cannot challenge the award. 

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