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Ram Behari Mehrotra v. Smarts Pvt. Ltd. New Delhi
Factual and Procedural Background
An award was made by an arbitrator, Shri P.L. Verma, on 25 May 1968. On 13 February 1969 Shri P.L. Verma filed an application under Section 14 of the Arbitration Act, 1940, seeking that notice of the making of the award be given to the parties and that the award be made a rule of the court. Notice of that application was issued to the parties. The petitioner(s) received the notice but did not appear before the court.
The record of 5 April 1969 shows that counsel for the applicant and for respondent No. 1 were present, while the remaining respondents were absent despite service. The matter was adjourned to permit respondent No. 1 to file objections. The court did not state in its order that proceedings were to be ex parte against absent respondents.
The petitioners could have, within thirty days of service of the notice, filed objections under Section 33 of the Arbitration Act challenging the award's validity, but they did not do so. Respondent No. 1 filed objections. On 13 August 1969 the trial court recorded statements, struck off the name of respondent No. 1 and dismissed his objections; the court then made the award the rule of the court and directed preparation of the decree sheet.
The petitioners appealed against the order making the award the rule of the court; that appeal was dismissed by the impugned order dated 10 January 1972. The petition now before the court challenges the dismissal and raises points about locus standi to appeal and related procedural issues.
Legal Issues Presented
- Whether a party to an arbitration agreement who does not challenge the validity of an award by invoking Section 33 of the Arbitration Act within the period prescribed by the Limitation Act (Article 119) can thereafter maintain an appeal under Section 39 of the Arbitration Act against an order making the award the rule of the court.
- Whether Order 41, Rule 4 of the Civil Procedure Code (CPC), or Section 96 of the CPC, can confer on an absentee party the locus standi to appeal when that party omitted to invoke Section 33 within the period of limitation.
- Whether a court making an award the rule of the court is bound to decide objections filed by another party when that other party subsequently withdraws or allows those objections to lapse (in particular, the duty of the court under Sections 15 and 16 of the Arbitration Act).
Arguments of the Parties
Petitioners' Arguments
- Mr. G.R. Chopra (for the petitioners) submitted that the petitioners, being parties to the arbitration agreement and thus parties to the resulting decree, had locus standi to file an appeal under Section 39 of the Arbitration Act even though they had not filed objections under Section 33.
- He relied on Order 41, Rule 4 of the Civil Procedure Code to support the proposition that where a decree proceeds on a ground common to multiple defendants, any one defendant may appeal on behalf of all; he also asked the court to consider Section 96 of the CPC.
- The petitioners further argued that the court dealing with the application to make the award the rule of court had a duty to consider any objections that were placed before it and to examine the award under Sections 15 and 16 of the Arbitration Act if the award was patently illegal.
Respondent(s) and Other Contentions Noted by the Court
- The record shows respondent No. 1 had filed objections under Section 33 but the name of respondent No. 1 was subsequently struck off and his objections dismissed on 13 August 1969; thereafter there was no one before the trial court challenging the award's validity.
- Both sides placed reliance on the decision in Nilkantha Sidramappu Ningashetti v. Kashinath Somanna Ningas-hetti (AIR 1962 SC 666), as noted by the court in the opinion.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Nilkantha Sidramappu Ningashetti v. Kashinath Somanna Ningas-hetti, AIR 1962 SC 666 | Where no party filed objections praying to set aside an award, the question of refusing to set it aside could not arise; consequently an appeal under Section 39(1)(vi) (against an order refusing to set aside an award) may not be maintainable in such circumstances. | The court relied on this observation to reinforce the conclusion that an appeal under Section 39(1)(vi) was not available where no live objection to setting aside the award existed at the time the impugned order was passed. |
| Madan Lai (dead) by legal representatives v. Sunder Lap, AIR 1967 SC 1233 | If a party seeks that an award be set aside on grounds under Section 30 (Arbitration Act), the party must apply within the limitation period (noted in the opinion as within 31 days of service of notice of filing of the award) to obtain adjudication that the award should be set aside. | The court cited this authority to support the principle that a party loses the right to challenge an award if it does not invoke the prescribed procedure (Section 33) within the period of limitation provided by Article 119 of the Limitation Act. |
Court's Reasoning and Analysis
The court analyzed the matter beginning from the nature of the Arbitration Act as a special statute that displaces ordinary court jurisdiction by conferring a specific statutory route for challenging arbitration awards. The court emphasized the procedural mechanism and time limits established by the Arbitration Act read with the Limitation Act:
- The court observed Section 33 of the Arbitration Act and Article 119 of the Limitation Act (Limitation Act, 1963) together require any party desiring to challenge the existence or validity of an arbitration agreement or an award to apply to the court on affidavits and, importantly, to do so within the period of limitation (thirty days after service of notice of filing of the award where the party prays that the award be set aside or remitted).
- Because the petitioners were served with notice of the application to make the award the rule of the court and did not, within the time prescribed, invoke Section 33 to challenge the award, the court held that they had lost the statutory locus standi to challenge the award later by appeal.
- The court addressed the petitioners' reliance on Order 41, Rule 4 of the CPC (permitting one of several defendants or plaintiffs to appeal) and Section 96 of the CPC, concluding that Order 41, Rule 4 cannot assist where the special statutory right to challenge an award has been lost by the omission to invoke Section 33 within the limitation period. The rule presumes the appeal is filed by a person entitled to challenge the decree; it cannot revive a special statutory right which has been lost.
- The court explained that Section 39 of the Arbitration Act provides appeals only from specified orders (including an order setting aside or refusing to set aside an award). The impugned order did not amount to a judicial refusal to set aside an award on subsisting objections because, by the time of the order, no party remained before the court pressing a live objection—the objections previously filed by respondent No. 1 had been withdrawn/abandoned and the petitioners had never joined the proceedings.
- The court acknowledged the petitioners' further submission that where objections are before the court it has a duty to decide them and to examine an award under Sections 15 and 16 if the award is patently illegal. Nevertheless, the court stated that this contention did not alter the outcome: the petitioners had lost locus standi by failing to invoke Section 33 in time. The court also observed that if objections are filed but the objecting party withdraws and offers no evidence, the court may be unable to sustain a challenge and would, absent exercising its powers under Sections 15 and 16, have to pass a decree in accordance with the award.
- The court relied on the authorities cited (Nilkantha and Madan Lai) to illustrate the principle that challenges must be initiated under the statutory procedure and within the limitation period; failure to do so precludes subsequently maintaining an appeal to revive the challenge.
Holding and Implications
Holding: The petition is dismissed. The court held that because the petitioners did not invoke Section 33 of the Arbitration Act within the period of limitation prescribed by Article 119 of the Limitation Act, they lost the statutory locus standi to challenge the award and cannot, thereafter, revive that challenge by an appeal under Section 39. Order 41, Rule 4 of the CPC does not avail the petitioners in these circumstances.
Implications:
- The immediate effect is that the trial court's order making the award the rule of the court stands and the petitioners' challenge is dismissed in limine.
- The decision emphasizes that challenges to arbitration awards must be brought by the statutory route (Section 33) and within the time limits set out in the Limitation Act; procedural omissions in that statutory route cannot be corrected by invoking general procedural rules such as Order 41, Rule 4 CPC.
- The opinion does not purport to lay down a novel principle of law beyond the application of the Arbitration Act and Limitation Act to the facts; it applies established authorities (as cited) to conclude that the petitioners' remedy was lost by inaction and that no appeal was maintainable in the circumstances presented in this case.
Pritam Singh Safeer, J:— An application dated the 13th of February, 1969, was filed under Section 14 of the arbitration Act, 1940, by Shri P.L Verma, who acting as an arbitrator has made an award on 25th May, 1968, with the prayer that notice of the making of the award be given to the parties and the award be made a rule of the court. The notice was issued to the parties. The petitioner being one of them received the notice, but did not appear in the court. The order recording on 5th April, 1969, discloses that the counsel for the applicant and respondent No. 1 were present and the rest of the respondents were absent in spite of service. Allowing opportunity to respondent No. 1 to file objections the proceedings were adjourned to 24th April, 1969. It was not contemplated by the statute and it was not stated in the said order that the proceedings were to be ex-parte against the absentee respondents. Section 33 of the Arbitration Act, hereafter called “the Act” is:—
“33. Any party to an arbitration agreement or any person claiming under him desiring to challenge the exisience or validity of an arbitration agreement or an award or to have the effect of either determined shall apply to the Court and the court shall decide the question on affidavits:
Provided that where the Court deems it just and expedient, it may set down the application for. hearing on other evidence also, and it may pass such orders for discovery and particulars as it may do in a suit.”
2. Reference in this behalf may also be made to Article 119 of the Limitation Act, 1963. It is provided therein that where anyone is to apply under the Act praying that the award be set aside or remitted for reconsideration he is to do that within thirty days of the service of the notice of the filing of the award.
3. The petitioners could after being served with the notice of the application under section 14, within thirty days, filed objections under section 33 of the Act challenging the validity of the award. They admittedly did not invoke section 33. They did not contest the application filed by the arbitrator to make the award the rule of the Court.
4. Respondent No. 1 who had appeared through counsel on the 5th or April, 1969, filed the objections. The petitioners never joined the proceedings at any stage. On statements being made by the parties, the court on 13th August, 1969. Passed the following order:—
“In view of the statements made the name of respondent No. 1 is struck off. His objections are dismissed. As no other respondent has filed objections, the award is made the rule of the court. The decree sheet be prepared. File be consigned to the record room. Announced in open court. Dated 13th August, 1969.”
5. Thereafter the petitioners filed an appeal against the a fore quoted order by which the award had been made the rule of the court; The appeal was dismissed by the impugned order dated the 10th of January, 1972. Urging this petition Mr. G.R Chopra submits that having been parties to the agreement even though the petitioners had not filed any objections under section 33 of the Act, they had the locus-standi to file an. appeal under section 39. It is submitted that the petitioners were parties to the decree because they had been parties to the arbitration agreement. It has to be seen whether a party to an arbitration agreement, who does not challenge in validity of an award can after it is made the rule of the court, file an appeal under section 39 of the Act.
6. Mr. Chopra has drawn my attention to order 41, Rule 4 of the Civil Procedure Code, which is:—
“4. Where there are more plaintiffs or more defendants then one in suit, and the decree appealed from proceeds on any ground, common to all the plaintiffs or to all the defendants any one of the plaintiffs or cf the defendants may appeal from the whole decree, and thereupon the Appellate Court may reverse or vary the decree in favour of all the plaintiffs or defendants, as the case may be.”
7. He has also urged that section 96 of the code be taken into consideration. Reading both the provisions together. I am of the view that Order 41, rule 4 will be of no avail where the right to challenge the award is found to have been lost by the omission to invoke section 33 of the Act within the period of limitation. The Arbitration Act is a special statute. It takes away the jurisdiction of the ordinary courts. It confers the right on the parties to get their disputes settled through arbitration.
8. Where an award is made and the parties to an aroitration agreement are notified of an application for making it the rule of the court, they have to act within section 33 readwith Article 119 of the Limitiation Act. A party, who omits to do so, cannot by resorting to any provision elsewhere confer on itself once again the same-locus-standi which it has under section 33 of the Act to prefer a challenge to the validity of the award. Order 41, rule 4 will apply where a person had the locus-standi to file an appeal. The rule is in the nature of an exception and its object is to give jurisdiction to the court of appeal to reverse or vary the decree in favour of all the plaintiffs or defendants where any one of the parties entitled to file the appeal may have moved the court. The rule presumes that the appeal is filed by a person entitled to challenge the decree.
9. Reliance has been placed by both the sides on the observations made in Nilkantha Sidramappu Ningashetti v. Kashinath Somanna Ningas-hetti . A I R 1962 S C 666.. It was observed therein that where no party had filed any objections praying for setting aside the award, the question of refusing to set it aside could not arise and for that reason no appeal could be maintainable under section 39 (1) (vi) of the Act, which allows the filing of an appeal against an order refusing to set aside an award.
10. I am persuaded to hold that where a party to an arbitration agreement does not challenge the validity of an award by preferring objections under section 33 of the Act, it cannot resort to an appeal to revive the challenge, the right to which is lost by not invoking section 33 of the Act within the period of Limitation prescribed by Article 119 of the Limitation Act.
11. The next contention is that even though the petitioners had not filed any objections the court was b und to decide the objections filed by another party to the arbitration agreement. The counsel's submission would have made meaning if respondent No. 1 who had preferred the objections had continued with the constest. A reference to the record shows that when the parties counsel appeared on 31st July, 1969, oh their request the proceedings were adjourned for a compromise to 13th August, 1969. When the parties counsel appeared on 13th August, 1969, “their statements were recorded and the name of respondent No. 1 was directed to be deleted. Thereafter there was no one before the court challenging the validity of the award and the court had to make it the rule of the court. Even if the petitioner had appeared on the date when one of the parties who had filed the objections made the choice of resiling from them, it could have been said that he objections should have been taken to have been preferred by the parties which were apppearing before the court in order to join the proceedings. In this case if is conceded that the petitioners never appeared before the trial court and allowed the award to be made the tuie of the court. The trial court was in a situation if here there was no one present before it to ssbstantiate any challenge to validity of the award. There was no occasion to act in vacuum. The award had to be made the rule of court.
12. Reference is also made to Madan Lai (dead) by legal representatives v. Sunder Lap . AIR 1967 SC 1233., wherein it w.as observed that if a party wanted an award to be set aside on any of the grounds mentioned in section 30,’ it must apply wtthin 31 days of the date.of service of notice of filing of the award for obtaining an adjudication that the award deserved to be set aside.
13. Where parties to an arbitration agreement are notified that'an application has been moved for making the award the rule of the court and they do not file the objections within the period prescribed by law and where the particular party never appears before the trial court and permits the awards to be made the rule of the court, it will have no locus standi to challenge the award by filing.an appeal.
14. It is doubtful if theappeal could at all be maintainable. Section 39 of the Act is:—
“39. (l) An appeal shall lie from the following orders passed under this Act (and from not others) to” the Court authorised by law to hear appeals from original decrees of the Court passing the orders:—
An order—
(i) superseding an arbitration;
(ii) on an award stated in the form of a specified case;
(iii) modifying or correcting an award;
(iv) filing or refusing to file an arbitration agreement;
(v) staying or refusing to slay legal proceedings where there is an arbitration agreement;
(vi) setting aside or refusing to set aside an award:
Provided that the provisions of this section shall not apply to any order passed by a Small Cause Court.
(2) No second appeal shall lie from an order passed in appeal Under this section, but nothing in this section shall affect or take away any right to appeal to the Supreme Court.”
15. It is only clause (vi) in section 39(1) of the Act which is relevant to the contentions raised before me. This was not a case where the trial court had refused to set aside the award on any subsisting objections before it. No objections had been preferred by the petitioners. The objections preferred by respondent No. 1 no longer remained alive and the impugned order neither amounted to the setting of the award nor to a refusal to set it aside. When the impugned order was passed there was no one before the court whose contention to set aside the award may be said to have been refused.
16. At this stage the learned counsel for the petitioners reiterates his earlier submission that if a court dealing with the making of an award the rule of the court is faced with any objections, a duty is cast upon it to deal with the same when the award is patently illegal. A court has the duty to look at the award for purposes of sections 15 and 16 of the Act. Section 33 also persuades me to the view that where there are objections which are being urged before the court it becomes the duty of the court to decide them. The fate of this petition does “not turn upon that contention. Whether the Court had the duty to deal with the objections or not, the petitioners tost the locus-standi to throw the challenge to the validity of the award because they did not make the choice of the invoking section 33 within the period of limitation. I am also of the view that if objections are filed under section 33 of the Act, whatever may be the duty cast on the court, where the party filing the objections decamps from the scene of litigation and offers no evidence to substantiate the objections, the court would be rendered powerless and in that event it would have to pass a decree in accordance with the award unless it exercises its powers under sections 15 and 16 of the Act.
17. I am not persuaded that there is any merit in this petition. The same is dismissed in limine.
18. Petition dismissed.
Order 41, rule 4Alert