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CASE NO.: Appeal (civil)  1087-1088 of 2008

PETITIONER: D. RANGANAYAKULU

RESPONDENT: SUPERINTENDENT ENGINEER NSRC O&M & ANR

DATE OF JUDGMENT: 07/02/2008

BENCH: H.K. SEMA & MARKANDEY KATJU

JUDGMENT: JUDGMENT

O R D E R

CIVIL APPEAL NOS. 1087-1088 OF 2008 [Arising out of SLP(C) Nos.5721-5722/2005]

       Leave granted.  

       These appeals are directed against the judgment and order dated 1/11/2004 passed by  the High Court of Judicature of Andhra Pradesh at Hyderabad in CRP No.4880/2003  and AAO No.3514/2003.

       Briefly stated, the facts are as follows.

       On 18/04/1996, a contract was awarded to the appellant by the respondents for work  of lining the bed and sides of M.S. Right Main Canal.  The work was to be completed  within a period of six months divided into two slabs of three months each, i.e. three  months in the year 1986 and three months in 1987.  The work could not be completed  within stipulated time for the reasons which we are not concerned here.  Ultimately, the  work was finally completed in 1989.  A dispute arose.  The appellant, by its letter dated  20/10/1990, addressed to the respondent to settle the dues.   On  13/12/1990, the  appellant  .....2.

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approached the Civil Court and filed an application praying to take up arbitration and  act as arbitrator.  On 13/02/1991, the Court refused to act as arbitrator and dismissed  the application. On 06/06/1991, the appellant filed O.P. No. 167/1990 before the  Principal Subordinate Judge, Nasaraopet under Section 8(1)(b) of Arbitration Act, 1940  for appointing arbitrator from list of names supplied by the appellant.  In that  application, counter was filed by the respondent herein objecting to jurisdiction of  arbitrator. However, it appears from the counter that the respondent had submitted the  names of Chief Engineer, Minor Irrigation, Chief Engineer, Medium Irrigation and  Commissioner, CADA.  The learned Judge, by its order dated 30/04/1993, rejected the  names supplied by the parties and appointed Mr. Justice Punniah, retired Judge of the  High Court as sole arbitrator.

       Undisputedly, the order dated 30/04/1993 passed by the learned Judge rejecting the  names of arbitrator supplied by the parties and appointing Mr. Justice Punniah, retired  Judge of the High Court as sole arbitrator has not been assailed by the respondents  herein.  The said order has attained finality.

       Thereafter, the respondents participated in the proceedings before the sole arbitrat or  throughout without any demur  and  the  award  was  passed  by the sole arbitrator on  ....3.

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02/03/1995.  Against the award, two suits were filed.  O.S. No.108/1996 was filed by the  appellant herein for making award the Rule of Court.  O.S. No.110/1996 was filed by the  respondents herein to set aside the award dated 02/03/1995.  In the O.S. filed by the  respondents herein, they raised an objection that the arbitrator has passed the award  without any jurisdiction.  The learned Judge allowed O.S. No.108/1996 filed by the  appellant herein and O.S. 110/1996 filed by the respondents herein was dismissed with  costs.  The learned Judge also allowed the decree and made the award dated 02/03/1995  Rule of the Court.  Hence, present appeals by special leave.

       On 01/04/2005, this Court issued limited notice on SLP as under:-         "Issue notice to ascertain if the respondents had  submitted to the jurisdiction of the Arbitrator and  participated in the proceedings without any demur which will  have the effect of waiver."

       Mr. L. Nageswara Rao, learned senior counsel appearing for the appellant contended  that once the party has participated in the proceedings before the arbitrator without any  demur and without challenging the order appointing the arbitrator, they have waived  their rights and are not entitled  ........4.

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to raise any objection with regard to the jurisdiction of the arbitrator at the time of  award being made Rule of the Court.           In view of the notice issued by this Court limited to the question as to whether the   parties participated before the arbitrator without any demur would have effect of waiver  of the parties to raise an objection about the jurisdiction of the arbitrator is the sole  question to be determined in these appeals.  In this connection, Mr. L. Nageswara Rao  has referred to a decision of this Court rendered in Sathyanarayana Brothers (P) Ltd.  Vs. T.N. Water Supply & Drainage Board, (2004) 5 SCC 314.  This Court in the said  decision considered a similar question and pointed out in paragraph 9 as under:-         "We find that the stage to have raised such an  objection as to whether the dispute was liable to be decided  by two arbitrators or a Board of three arbitrators had passed  long before.  The two arbitrators were appointed in  accordance with the provisions of the arbitration clause as well  as the third arbitrator called umpire.  The mode of hearing  was adopted in the manner that the dispute was heard by two  arbitrators appointed by the respective   parties.    The    matter   was  .....5.

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referred to the umpire since there was no agreement between  the two arbitrators.  There is no justification now at this stage  to raise such an objection that the Board of three arbitrators  should have decided the matter.  Such a plea contradicts its  own action, and it seems to be taken now to wriggle out of the  award ultimately given by the umpire, but it would not be  permissible at this stage.  Shri Nageswara Rao, learned senior  counsel, has placed reliance upon Russell on Arbitration --  "Loss of right to object".  It states as under: "A party who objects to the award on the  ground that the Tribunal lacks substantive  jurisdiction, should not only act promptly, but  should also take care not to lose his right to

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object.  A party who takes part or continues to  take part in the proceedings is in a different  position from someone who takes no part in the  proceedings.    The latter cannot  ........6.

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lose his right to object as long as he acts  promptly to challenge the award once it is  published.  The former must, however, state his  objection to the Tribunal’s jurisdiction ’either  forthwith or within such time as is allowed by  the arbitration agreement or the Tribunal’.   That statement, which should be recorded in  writing and sent to the Tribunal and the other  parties, should not only mention the  jurisdiction objection but also make clear that  any further participation in the arbitration will  be without prejudice to the objection.  If that is  not done, the party concerned may not be able  to raise that objection before the court ’unless  he shows that, at the time he took part or  continued to take part in the proceedings, he  did not know or could    not    with   reasonable  .....7.

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diligence have discovered the grounds for the  objection’.  A person alleged to be a party to  arbitral proceedings but who takes no part in  those proceedings may at any time apply to the  court for a declaration, an injunction or other  relief concerning the validity of the arbitration  agreement, the proper constitution of the  Arbitral Tribunal and any matter submitted to  arbitration in accordance with the arbitration  agreement".

       The same view was taken by this Court in the case of State Bank of India Vs. Ram  Das & Anr., (2003) 12 SCC 474. There it was pointed out in paragraph 27 as under:-         "It was only after the High Court adversely  commented upon the conduct of the arbitrator in the manner  as noticed hereinbefore, that the appellant became wiser and  for the first time this objection has been taken before us.  It is  an established view of law that where a party despite  knowledge of the defect in the jurisdiction or bias or malice  of an arbitrator participated  in the proceedings  .......8.

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without any kind of objection, by his conduct it disentitles  itself from raising such a question in the subsequent  proceedings.  What we find is that the appellant despite  numerous opportunities made available to it, although it was  aware of the defect in the award of the umpire, at no stage  made out any case of bias against the umpire.  We, therefore,  find that the appellant cannot be permitted to raise the  question of bias for the first time before this Court."

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       Mr. Anoop Choudhary, learned senior counsel appearing for the respondents,  however, referred to a decision of three-Judge Bench of this Court rendered in State of  A.P. & Anr. Vs. Obulu Reddy, (2001) 10 SCC 30.  We are of the view that the facts of  that case is not applicable in the present case.  In the case referred to by Mr. Anoop  Choudhary, learned senior counsel, it clearly appears that the appointment of arbitrator  was challenged in the High Court contending, inter alia, the jurisdiction of the  arbitrator.  As already pointed out, in the present case, the respondent did not challenge  the order of the Court dated 30/04/1993 appointing Mr. Justice Punniah, retired Judge  of the High Court as sole arbitrator.  They participated in the entire proceedings before  the arbitrator without any demur till the award was passed on 02/03/1995.

       In the facts and  circumstances as recited above, the  ..........9.

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respondents waived their rights to file an objection at the time when the award was made  Rule of the Court.  For the reasons afore-stated, these appeals are allowed and the order  of the High Court is set aside.  No order as to costs.