J. KODANDA RAMI REDDYversusSTATE OF A.P. & ORS.

              [201 OJ 13 (ADDL.) S.C.R. 753


               J. KODANDA RAMI REDDY                           A
                             v.
                  STATE OF A.P. & ORS.
          (Civil Appeal Nos. 1401-1405 of 2002)
                   NOVEMBER 11, 2010
                                                               B
 [R.V. RAVEENDRAN AND DALVEER BHANDARI, JJ.]

     Arbitration Act, 1940 - ss. 8, 30 and 33 - Application u/
s. 8 for appointment of arbitrator by bidder company -
Objection raised by State that in view of GOM No. 430 dated C
24.10.1983 all claims above Rs. 50,0001- would be decided
by the civil court of competent jurisdiction - Appointment of
arbitrator by Sub-ordinate Judge - Order attaining finality -
Passing of award by arbitrator - Award filed before Sub-
ordinate Judge - Application ulss. 30 an 33 by State for D
setting aside the award - Award made rule of the court -
Appeal and revision petitions - High Court setting aside the
appointment of arbitrator holding that dispute to be resolved
by the competent civil court - Held: Not justified - GOM dated
24.10.1983 does not contain any provision for arbitration in E
regard to claims exceeding Rs. 50, 0001- - However, the State
did not challenge the order of appointment of arbitrator -
State participated in the arbitration proceedings without
protest - No submission to the effect that there was no
arbitration agreement nor the award challenged on the said F
ground - Thus, State estopped from subsequently contending
that there was no arbitration agreement and the remedy was
only by way of suit - Also, it cannot be challenged belatecfly
- Adjudication was by court of competent jurisdiction, thus,
award was not a nullity - Also, order appointing the arbitrator G
not 1 nullity, even though it might be erroneous - Order of
appointment of arbitrator had attained finality - Th11s, order
passed by High Court set aside and that of trial court restored
- Matter remanded to >-ligh Court to consicfer order rejecting

                            753                                H
    754   SUPREME COURT REPORTS [2010] 13 (ADDL.) S.C.R.

A   the application u/ss. 30 and 33 - Government order - GOM
    No. 430 dated 24. 10. 1983 - Estoppel - Delay - Res judicata
    - Rule of finality.

          The first respondent-State entered into an agreement
8   dated 22.6.1987 with the appellant in regard to execution
    of certain work. The appellant raised claims in regard to
    the said work with the first respondent. The claims were
    not settled. The appellant filed a petition under Section 8
    of the Arbitration Act, 1940 before the Sub-ordinate Judge,
    seeking appointment of an arbitrator. The first
C   respondent resisted the petition on basis of the GOM No.
    430 dated 24.10.1983 which was clarified by the GOM
    dated 01.06.1987 that all claims above Rs. 50,000/- would
    be decided by the civil court of competent jurisdiction by
    way of regular suit. The Sub-ordinate Judge, by order
D   dated 25.03.1991, appointed the arbitrator under Section
    8(2) of the Act. The first respondent did not challenge the
    said order. The arbitrator passed an award. The arbitrator
    then filed the award before the Sub-ordinate Judge. The
    first respondent filed a petition under Sections 30 and 33
E   of the Act for setting aside the award. The Sub-ordinate
    Judge, by order dated 08.04.1993, dismissed the petition
    and made the award a rule of the court. Aggrieved, the
    first respondent filed CMA No. 1251/1993 challenging the
    dismissal of its application under Sections 30 and 33 of
F   the Act; CRP No. 4055/1993 challenging the direction that
    a decree be made in terms of the award under Section
    14(2) of the Act; and CRP No. 134/1995 challenging
    belatedly the order dated 25.03.1991 under Section 8(2)
    of the Act appointing the arbitrator. The High Court by
G   order dated 05.10.1999 held that the disputes relating
    claims of more than Rs.50,000/- would not be adjudicated
    by appointment of an arbitrator under Section 8 of the
    Act, but should be resolved by a competent civil court.
    Therefore, the appellant filed the instant appeals.
H
  J. KODANDA RAMI REDDY v. STATE OF A.P. &             755
                        ORS.

    Allowing the appeals, the Court                           A

     HELD: 1.1 The GOM No. 430 dated 24.10.1983 does
not contain any provision for arbitration in regard to
claims exceeding Rs.50,000/- though the said GOM was
in fact interpreted in many cases prior to 1995, as a
                                                              B
provision for arbitration. [Para 11] [767-D]

    State of Andhra Pradesh vs. Obulu Reddy 2001 (10) SCC
30 - relied on.

    State of Andhra Pradesh vs. /. Devendra Reddy 1999 (9)    c
SCC 571; Vishakhapatnam Urban Development Authority v.
V. Narayana Raju 1999 (9) SCC 572; State of Andhra
Pradesh vs. Obulu Reddy 1999 (9) SCC 568 - referred to.

     1.2 The issue whether there was an arbitration
agreement between the parties and, therefore, the             D
disputes were arbitrable, was adjudicated and by order
dated 25.3.1991, the Sub-ordinate Judge allowed the
application under Section 8(2) of the Arbitration Act, 1940
holding that there was an arbitration agreement and
consequently, appointed the arbitrator. The said order        E
dated 25.3.1991 was not challenged and attained finality.
The arbitrator entered upon the reference on 11.4.1991.
The first respondent participated in the arbitration
proceedings fully and contested the claims of the
appellant, on merits without challenging the jurisdiction     F
of the arbitrator. The first respondent did not even plead
or contend before the arbitrator that there was no
arbitration agreement or that the entire proceedings were
invalid. The failure of the first respondent to raise any
such contention was because the said contention had           G
already been expressly raised in the proceedings under
Section 8 of the Act and rejected by the Sub-ordinate
Judge in its order dated 25.3.1991 appointing the
arbitrator and that order had been accepted and had
attained finality. [Para 12] [767-F-H; 768-A-D]               H
    756   SUPREME COURT REPORTS [2010] 13 (ADDL.) S.C.R.


A      1.3 When the arbitrator made the award dated
  8.6.1992, the award was challenged by the first
  respondent by filing a petition under Sections 30 and 33
  of the Act. The first ·respondent did not challenge the
  award on the ground that there was no arbitration
B agreement and that consequently, the award was invalid
  On the other hand, the first respondent clearly admitted
  that it had raised such a contention in its objection
  statement to the application under Section 8 of the Act
  and that was rejected by tbe Sub-ordinate Judge.
c Thereafter, the first respondent specifically admitted that
  the arbitrator was appointed in terms of the agreement
  between the parties. [Para 13] [768-E-G; 769-E]

       1.4 Having failed to contend that there was no
  arbitration agreement in the proceedings under Sections
D 30 and 33 of the Act, and on the other hand having
  specifically conceded that the arbitrator was appointed in
  terms of the agreement, the first respondent was
  estopped from subsequently contending in the appeal
  filed against the order dated 8.4.1993 rejecting the
E challenge to the arbitration award, that there was no
  arbitration agreement and the remedy of the contractor
  was only by way of a suit. Such a contention would be
  barred by the principle of res judicata as it was directly
  and substantially in issue in the proceedings under
F Section 8(2) of the Act and the decision therein had
  attained finality. [Para 13] [769-H; 770-A-C]

       1.5 The first respondent having allowed the order
  dated 25.3.1991 to remain unchallenged and
G implemented, and having participated in the arbitration
  proceedings before the arbitrator without protest and
  without raising the contention that there was no
  arbitration agreement, and without challenging the award
  on the ground that there was no arbitration agreement,
  could not raise the issue in an appeal against the rejection
H
   J. KODANDA RAMI REDDY v. STATE OF A.P. &            757
                    ORS.
of the application under Sections 30 and 33 of the Act.       A
The first respondent could not challenge the order dated
25.3.1991, appointing the arbitrator, which had attained
finality, belatedly on 17.4.1993 by contending that there
was no arbitration agreement between the parties. [Para
14] [770-D-F.]                                                B

    State of Andhra Pradesh vs. Obu/u Reddy 2001 (10) SCC
30 - distinguished.

     State Bank of India vs. Ramdas 2003 (12) SCC 474 -
referred to.                                                  C

    Russell on Arbitration 22nd Edn. p 382 - referred to.

     1.6 The order under Section 8(2) of the Act, by the
Sub-ordinate Judge was not challenged and was allowed         D
to attain finality. It was challenged only after the award
was made and that award was made a rule of the court.
In such circumstance, the rule of finality would come into
play in regard to the order under Section 8(2) of the Act
appointing the arbitrator. [Para 16] [772-H; 773-A]
                                                              E
     1.7 In the instant case, though the first respondent
had initially contended that there was no arbitration
agreement, when the civil court held that there was an
arbitration agreement and appointed the arbitrator, the
first respondent did not challenge the decision, but          F
accepted the said position and participated in the
arbitration proceeding without protest. When the award
was made by the arbitrator, the first respondent filed an
application for setting aside the award wherein it admitted
specifically that the appointment of the arbitrator was in    G
terms of the agreement between the parties, but
challenged the award on other grounds. In the
circumstances, when there was an adjudication by a
court of competent jurisdiction that there was an
arbitration agreement and when that was not cballenged        H
    758    SUPREME COURT REPORTS [2010) 13 (ADDL.) S.C.R.


A and the arbitrator was allowed to proceed on the basis
  that there was an arbitration agreement, and when it was
  specifically conceded that the appointment of arbitrator
  is in terms of the agreement between the parties, the
  award would not be a nullity. [Para 17) [173-C-F]
B
       1.8 The order dated 25.3.1991 appointing an arbitrator
  was also not a nullity, even though it may be erroneous.
  A decree would be a nullity only if it is passed by a court
  usurping a jurisdiction it did not have. But a mere wrong
C exercise of jurisdiction or an erroneous decision by a
  court having jurisdiction, would not result in a nullif:y. An
  order by a competent court, even if erroneous, is binding,
  unless it is challenged and set aside by a higher forum.
  [Para 18) [773-F, G]

D       D. Ranganayakulu vs. Superintending Engineer NSRC
    CA No. 1087-1088 of 2008 decided on 7.2.2008 - referred
    to.

      1.9 The impugned order dated 5.10.1999 in CRP
E No.134 of 1995 setting aside the order dated 25.3.1991
  appointing an arbitrator under Section 8(2) of the Act
  passed by the Sub-ordinate Judge, is set aside and the
  order dated 25.3.1991 is restored. As a consequence, the
  order dated 5.10.1999 allowing CMA No.1251/1993 and
F CRP No.4055/1993 is set aside. CMA No. 1251/1993 and
  CRP No.4055/1993 are remanded to the High Court for
  fresh consideration and disposal in accordance with law
  on merits. Thus, the order dated 28.4.2000 dismissing the
  review CMP Nos.5446/2000 and 5447/2000 is set aside.
  [Para 21) [775-A-D]
G
                      Case Law Reference:
          1999 (9) sec 571    Referred to         Para 10, 12
          1999 (9) sec 572    Referred to         Para 10, 16
H
   J. KODANDA RAMI REDDY v. STATE OF A.P. &                759
                    ORS.
    1999 (9) sec 568        Referred to          Para 11          A
    2001 (10) sec 30        Relied on            Para 11

    2003 (12) SCC 474       Referred to          Para 15

    2001 (10) sec 30        Distinguished        Para 16, 17      B
    CIVIL APPELLATE JURISDICTION : Civil Appeal No.
1401-1405 of 2002.

    From the Judgment & Order dated 05.10.1999 of the High
Court of Andhra Pradesh in CMA No. 1251 of 1993, CRP No.          c
4055 & 134 of 1995.

     L. Nageswara Rao, V. Sridhar Reddy, V.N. Raghupathy for
the Appellant.

    R. Sundarawardhan, Manoj Saxena, Rajneesh Kr. Singh,          D
Rahul Shukla, T.V. George for the Respondents.

    The Judgment of the Court was delivered by

     R.V. RAVEENDRAN, J. 1. The first respondent (State of
A.P.) entered into an agreement dated 22.6.1987 in regard to      E
execution of the work "Ongole Water Supply Improvement
Scheme with NS canals as a source" in pursuance of
acceptance of appellant's tender on 31.3.1987.

     2. By GOM No. 430 dated 24.10.1983, the first respondent     F
issued the following revised procedure in regard to arbitration
introduced by GOM dated 31.7.1975. The relevant portions of
the revised procedure (paras 2, 3 & 4) are extracted below:

    GOM No. 430 [Irrigation (IRA V) Dept, dated 24.10.1983        G

    "xxxxx

    2. The question of revising the above procedure has been
    receiving the attention of government for some time past.
                                                                  H
    760     SUPREME COURT REPORTS (2010] 13 (ADDL.) S.C.R.


A         The government, after careful consideration of various
          aspects to issues involved direct the procedure be revised
          as follows:

    Value of Amount                     Panel of Arbitrators
B
    1. Claims upto Rs. 10,000/-         Superintending Engineer of
                                        another Circle
                                        (a) Another Chief Engineer of
    2. Claims above Rs. 10,000/-        the same Depa1 tment
       upto Rs.50,000/-                 (b) Where there is only one
c                                       Chief Engineer, in the Dept.,
                                        the Chief Engineer will submit
                                        proposals to Govt. in the
                                        Administrative Dept. for
                                        nomination of another Chief
D                                       Engineers as Arbitrator by
                                        Govt.

    3. Claims above Rs. 50,000/-        Court of competent
                                        jurisdiction.
E   3. Claims means all claims in the contract.
          4. The orders referred to in paras 2 and 3 above shall be
          applicable to all the agreements entered into by Govt. from
          the date of issue of this order and will be applicable to all
          the Engineering Departments, in the State Govt. referred
F
          to para (6) ."

                              xxxxxxxxxxx
  The above GOM dated 24.10.1983 was revised by GOM
G No.160 dated 1.6.1987 as follows:

                                   "ORDER

          Govt., after careful consideration of various aspects,
          issued orders in para (2) of the G.O. read above
H         prescribing the revised procedure for arbitration.
   J. KODANDA RAMI REDDY v. STATE OF A.P. &                761
          ORS. [R.V. RAVEENDRAN, J.]
    2. It has come to the notice of the Govt., that some of the A
    contractors are approaching Courts to decide the claims
    above Rs. 50,000/- under the provisions of the Arbitration
    Act taking advantage of para 2(3) of the G.O. read above.
    The intention of the Govt. incorporating the above provision
    is to dispense with the Arbitration proceedings in respect B
    of claims above Rs. 50,000/- and leave the parties to have
    their remedy in Civil Court. As some of the contractors have
    misconstrued that the claims above Rs. 50,000/- have to
    be decided under the Arbitration Act and not under
    ordinary Law in a regular civil Court, the Govt., direct that  c
    the following amendments to G.O.MS. No. 430, l(lrr.V)
    Deptt., dated 24-10-1983 be issued by way of clarification


    (i) Item (3) of para (2) may be deleted.
                                                                   D
    (ii) Substitute para (3) by the following.

    "All claims above Rs. 50,000/- shall be decided by the Civil
    Court of competent jurisdiction by way of a regular suit."

    (iii) Para 3 to 7 are renumbered as para 4 to 8."              E

      3. By letter dated 15.2.1990 the appellant lodged fourteen
claims (of which claims 12, 13 and 14 related to pre-reference,
pendente lite and future interest respectively) in regard to the
said work, with the first respondent and demanded payment. F
As the first respondent did not settle the claims, the appellant
filed a petition before the Sub-ordinate Judge, Nellore, under
Clause 73 of the A.P. Standard Specifications, requesting the
said court to act as the arbitrator and settle the claims, in terms
of the provision for arbitration, contained in the contract dated G
22.6.1987. This was on the assumption that Item (3) of para 2
of GOM dated 24.10.1983 required all claims above Rs.50,000/
- to be decided by arbitration, the named Arbitrator being 'the
court of competent jurisdiction'. The Sub-ordinate Judge, by
order dated 17.4.1990, held that he could not act as an H
    . 762   SUPREME COURT REPORTS [2010] 13 (ADDL.) S.C.R


A    arbitrator. Thereafter, the appellant issued a notice dated
     6.6.1990, under section 8 of the Arbitration Act, 1940 ('Act' for
     short) seeking reference of the disputes to arbitration and
     furnished a panel of three names with a requE!st to the State
     Government to concur in the appointment of any one from that
B    Panel as sole arbitrator for adjudicating the disputes raised in
     his claim letter dated 15.2.1990. As there was no response,
     appellant filed OP No. 62/1990 under Section 8 of the Act in
     the Court of Sub-ordinate Judge, Nellore, seeking appointment
     of a sole arbitrator from out of the panel of three names
c    suggested by him, to decide the disputes arising out of
     agreement dated 22.6.1987.

        4. The first respondent filed a counter to the said
  application disputing the claims and contending that as per the
  terms of GOM dated 24.10.1983 as clarified by the GOM dated
D 1.6.1987, all claims over and above Rs.50,000/- shall have to
  be decided by civil court of competent jurisdiction by way of
  regular suit and not by way of arbitration. We extract below para
  11 of the counter statement filed by the first respondent in the
  proceedings under section 8 of the Act :
E
        "11. As per the conditions of the agreement, the settlement
        of all claims over and above Rs.50,000/- shall be decided
        by the Civil Court of the competent jurisdiction by way of
        regular suit only and not by arbitration. As per Government
F       order in G.O.Ms No.430, Irrigation (l&PD) Dept. dated
        24.10.1983 an as clarified in subsequent G.O.Ms No.160
        Irrigation & CAD (project Wing) Department dated
        1.6.1987 wherein it is clearly stated that all claims above
        Rs.50,000/- shall be decided by civil court of competent
        jurisdiction, by way of regular suit for the alleged claims
G
        by paying advalorem court fee. The Petitioner can not
      ..invoke the provisions of the Arbitration Act, for the
        appointment of sole arbitrator."

  The Sub-ordinate Judge, Nellore by his order dated 25.3.1991
H allowed the said application and appointed Sh. HS Bhat,
   J. KODANDA RAMI REDDY v. STATE OF A.P. &                  763
          ORS. [R.V. RAVEENDRAN, J.]
retired Chief Engineer as the sole arbitrator under Section         A
8(2) of the Act. The civil court accepted the contentions of the
appellant that the contract was concluded by acceptance of
his tender on 31.3.1987 and the subsequent execution of the
agreement on 22.6.1987 was merely a formality; that the
clarificatory GOM dated 1.6.1987 was prospective in operation       B
and therefore, did not apply to the contract between appellant
and respondent; and that GOM dated 24.10.1983 alone
applied, which was capable of being interpreted as providing
for arbitration in regard to claims exceeding Rs.50,000/-. The
learned Sub-ordinate Judge then proceeded to nominate the           c
Arbitrator, on the ground that under GOM dated 24.10.1983,
in regard to claims above Rs.50,000/-, there was no named
Arbitrator and the court of competent jurisdiction had to appoint
the arbitrator.

      5. The first respondent did not challenge the said order      D
dated 25.3.1991 appointing an arbitrator under Section 8(2)
of the Act. The arbitrator appointed by the court entered upon
the reference on 11.4.1991 and after due hearing made an
award dated 8.6.1992. The arbitrator allowed claims 2, 3, 4
and 9 and rejected claims 1, 5, 6, 7, 8, and 10 of the appellant.   E
The arbitrator also allowed claim 11 by directing release of the
final bill amount and security deposit with interest @18% per
annum on the final bill amount from 15.2.1990 and on the
security deposit amount from 1.10.1991 upto date of payment
or decree, whichever was earlier. The arbitrator also granted       F
a simple interest at 18% per annum on the amounts awarded
under claim Nos. 2, 3, 4 and 9 for the pre-reference period
(15.2.1990 to 10.4.1991), pendente lite (11.4.1991to8.6.1992)
and also as future interest (9.6.1992 to date of decree).
                                                                    G
     6. The Arbitrator filed the award before the Sub-ordinate
Judge, Nellore under Section 14(2) of the Act which was
registered as OP No. 56/1992. The first respondent filed OP
No. 81/1992 under Sections 30 and 33 of the Act for setting
aside the award. The Sub-ordinate Judge, Nellore by common
                                                                    H
    764    SUPREME COURT REPORTS [2010] 13 (ADDL.) S.C.R.


A   order dated 8.4.1993 dismissed OP No. 81 /1992 filed by the
    first respondent for setting aside the award, and allowed OP
    No.56/1992 filed under Section 14(2) of the Act and made the
    award, a rule of the court, and awarded further interest at 18%
    per annum from the date of decree till the date of realization.
B
        7. Feeling aggrieved, on 17.4.1993, the first respondent
  filed an appeal and a revision against the order dated 8.4.1993.
  CMA No. 1251/1993 was filed challenging the dismissal of its
  application under Sections 30 and 33 of the Act. CRP No.
C 4055/1993 was filed challenging the direction that a decree be
  made in terms of the award under Section 14(2) of the Act.
  Along with the said appeal and revision, it filed another revision
  petition (CRP No. 134/1995) on 14.7.1993 challenging
  belatedly the order dated 25.3.1991 made in OP No. 62/1990
  under Section 8(2) of the Act appointing the arbitrator.
D
        8. The said appeal and two revision petitions were
  disposed of by the High Court by a brief common order dated
  5.10.1999, which is the subject matter of challenge in these
  appeals. The High Court held that having regard to decision of
E this Court in State of Andhra Pradesh vs. Obulu Reddy (Civil
  Appeal No. 7246/1993 decided on 21.9.1999) holding that
  disputes relating claims of more than Rs.50000/- shall not be
  adjudicated by appointment of an Arbitrator under section 8 of
  the Act, but should be resolved by a competent civil court, the
F revision petition challenging the order dated 25.3.1991
  appointing the arbitrator (CRP No. 134/1995), had to be
  allowed. Consequently, the High Court allowed CMA No. 1251
  of 1993 filed against the dismissal of the application under
  Sections 30 and 33 of the Act and CRP No. 4055/1993 filed
  against the order making the award a rule of the court and
G permitted the appellant to convert OP No.62/1990 filed under
  Section 8 of the Act into a regular civil suit by carrying out
  necessary amendments and by payment of necessary court fee.
  The appellant filed two petitions for reviewing the order allowing
  CMA 1251/1993 and CRP 4055/1993 and the said review
H
   J. KODANDA RAMI REDDY v. STATE OF A.P. &                   765
          ORS. [R.V. RAVEENDRAN, J.]
petitions were dismissed by an order dated 28.4.2000. Feeling        A
aggrieved, the appellant has filed these five appeals challenging
the common order dated 5.10.1999 of the High Court made in
CMA No.1251/1993, CRP No.4055/1993 and CRP No.134/
1995 and the common order dated 28.4.2000 dismissing the
review petitions in CMP Nos. 5446/1993 and 5447/2000.                B

     9. On the contentions urged, the following questions arise
for consideration in this case :

     (i) Whether the GOM dated 24.10.1983 provided for
arbitration?                                                         C

     (ii) Whether the order dated 25.3.1991 appointing an
arbitrator under section 8 (2) of the Act, could be challenged
by the State Government, two years later, after participating in
the arbitration proceedings without protest and after the arbitral   o
award being made a rule of the court?

     (iii) Whether the High Court was justified in setting aside
the order dated 25.3.1991 appointing the arbitrator under
section 8(2) of the Act and the common order dated 8.4.1993
rejecting the first respondent's application for setting aside the   E
award and making the award, a rule of the court.

Re : Question No.(i)

      10. The GOM dated 24.10.1983 first came up for
                                                                     F
consideration of this Court in State of Andhra Pradesh vs. /.
Oevendra Reddy (decided on 2.3.1990 and reported in 1999
(9) SCC 571 ). This Court held that the provisions of the GOM
dated 24.10.1983 were vague and uncertain and consequently
if a reference to arbitration had been made under section 8(2)       G
of the Act, the same should not be interfered with. It was also
held that the GOM dated 1.6.1987 revising the GOM dated
24.10.1983 by providing that all claims above Rs.50,000 shall
be decided not by arbitration, but by way of a regular suit by
the civil court of competent jurisdiction, was prospective in
application and did not apply to the contracts entered prior to      H
    766     SUPREME COURT REPORTS [2010] 13 (ADDL.) S.C.R.

A its date (1.6.1987). However in a subsequent decision in
   Vishakhapatnam Urban Development Authority v. V.
  Narayana Raju [decided on 16.2.1995 reported in 1999 (9)
  SCC 572], this Court held that GOM dated 24.10.1983 clearly
  provided that the arbitration was available only in regard to
B claims upto Rs.50,000/- and not in regard to claims above
  Rs.50,000/- which had to be adjudicated by the court of
  competent jurisdiction; that though the expression "court of
  competent jurisdiction" was mentioned in the GOM dated
  24.10.1983 under the heading of "panel of arbitrators", that was
c only a defective drafting of the GOM and could not be construed
  to mean that the claims above Rs.50,000/- were to be
  adjudicated by arbitration. The decision in Vishakapatnam
  Urban Development Authority did not notice the earlier
  decision in Devendra Reddy.
D      11. The di'lergence between the two decisions was noticed
  by this Court in State of Andhra Pradesh vs. Obulu Reddy -
  1999 (9) sec 568 and the matter was referred to a larger
  Bench on 1.9.1999. Subsequently, a three Judge Bench of this
  Court decided the issue in State of Andhra Pradesh vs. Obu/u
E Reddy- 2001 (10) SCC 30, upholding the view expressed in
  Vishakapatnam Urban Development Authority. This Court
  held:

          "But having examined GOMs No.430, we have no
F         hesitation to agree with the conclusions arrived at in
          Vishakapatnam case and hold that under the said GOMs
          question of deciding claims above Rs.50,000/- by way of
          arbitration does not arise. It merely provided that disposal
          of claims up to Rs.50,000/- by way of arbitration indicating
          as to who would be the arbitrator depending upon the
G
          claims and all claims above Rs.50,000/- are to be filed
          before the civil court of competent jurisdiction. This being
          the position, the second GOMs No.160 is nothing but a
          clarificatory one and was required to be issued because
          of the confusion arising in the minds of some of the
H
  J. KODANDA RAMI REDDY v. STATE OF A.P. &                   767
         ORS. [R.V. RAVEENDRAN, J.]
    claimants as well as the civil court, inasmuch as the civil      A
    court did entertain application under section 8 and appoint
    arbitrator in respect of claims above Rs.50,000/-. The
    earlier judgment of this Court in D. Reddy case has
    interpreted GOMs No.430 in a manner which is not the
    correct interpretation according to us. The orders               B
    appointing arbitrator under section 8 in the two appeals
    filed by the State are set aside. The appeals filed by the
    State are allowed.

    In CA No. 7246 of 1993 filed by the State, it is brought to
    our notice that not only an arbitrator was appointed by the      C
    Sub-ordinate Judge, but an award has already been given.
    In view of our aforesaid decision, the said award is a nullity
    and stands annulled."

Therefore it has to be held that the GOM dated 24.10.1983            D
does not contain any provision for arbitration in regard to claims
exceeding Rs.50,000/- though the said GOM was in fact
interpreted in many cases prior to 1995, as a provision for
arbitration.
                                                                     E
Re : Questions (ii) and (iii)

      12. In the application under section 8(2) of the Act, the
appellant had specifically contended that there was an
arbitration agreement between the parties and therefore, the
disputes were arbitrable. The first respondent resisted the said     F
petition by specifically contending that there was no arbitration
agreement between the parties. The issue was adjudicated,
and by order dated 25.3.1991, the Sub-ordinate Court, Nellore,
held that there was an arbitration agreement and consequently
appointed the arbitrator. The said court in allowing the             G
application under Section 8(2) of the Act filed by the appellant,
by order dated 25.3.1991, followed the decision of this Court
in State of Andhra Pradesh v. /. Devender Reddy [C.A.
No.3578/1989 decided on 2 .3.1990] and several decisions of
the Andhra Pradesh High Court and held that the GOM dated            H
    768    SUPREME COURT REPORTS [2010] 13 (ADDL.) S.C.R.


A 1.6.1987 was prospective in operation, that in regard to
  contracts concluded prior to 1.6.1987, GOM No.403 dated
  24.10.1983 alone applied and consequently disputes involving
  claims of more than Rs.50,000/- had to be referred to Arbitration
  by the court of competent jurisdiction under section 8(2) of the
B Act. The said order dated 25.3.1991 was not challenged and
  attained finality. The Arbitrator entered upon the reference on
  11.4.1991. The first respondent participated in the arbitration
  proceedings fully and contested the claims of the appellant, on
  merits without challenging the jurisdiction of the arbitrator. More
c importantly, the first respondent did not even plead or contend
  before the Arbitrator that there was no arbitration agreement
  or that the entire proceedings were invalid. The failure of the
  first respondent to raise any such contention was obviously
  because the said contention had already been expressly raised
  in the proceedings under section 8 of the Act and negatived
0
  by the Sub-ordinate Court in its order dated 25.3.1991
  appointing the Arbitrator and that order had been accepted and
  had attained finality.

        13. Ultimately, when the arbitrator made an award dated
E 8.6.1992, the award was challenged by the first respondent by
  filing a petition (OP No.81/1992) under sections 30 and 33 of
  the Act, on the following grounds: (i) the Arbitrator had travelled
  beyond the terms of the agreement; (ii) that as the contractor
  had himself terminated the contract on 28.10.1989, he was
F disentitled to make any claim under the contract; and (iii) that
  the contractor was not entitled to any of the amounts claimed
  under the contract. The first respondent did not challenge the
  award on the ground that there was no arbitration agreement
  and that consequently, the award was invalid. On the other hand,
G the first respondent clearly admitted that it had raised such a
  contention in its objection statement to the application under
  section 8 of the Act and that was negatived by the Sub-ordinate
  Court. We extract below the relevant portion of para (4) of the
  petition under sections 30 and 33 of the Act:
H
  J. KODANOA RAMI REDDY v. STATE OF A.P. &                  769
         ORS. [R.V. RAVEENDRAN, J.)
    "As the petitioner rejected the said claims the 1st             A
    respondent filed a petition before this Hon'ble Court in O.P.
    No.62 of 1990 under Section 8 of the Arbitration Act for
    the appointment of sole arbitrator to adjudicate the disputes
    raised by him. The petitioner opposed the said petition on
    the ground that the arbitration clause termed in the            B
    agreement do not empower the 1st respondent/contractor
    to file a petition before this Hon'ble Court under the
    provisions of the Arbitration Act and that they can only file
    a civil suit before this Hon'ble Court on payment of ad
    valorem Court fee on the amounts claimed by him.                c
    However, this Hon'ble court was pleased to allow the
    petition and appointed the 2nd respondent herein as sole
    arbitrator under Section 8 of arbitration Act to adjudicate
    the disputes raised by the 1st respondent. The 2nd
    respondent entered into the reference and was pleased           0
    to pass the Award dated 8.6.1992."

Thereafter, the first respondent specifically admitted that the
arbitrator was appointed in terms of the agreement between
the parties.· We extract below the relevant portion of Para 5 of
the said petition under sections 30 and 33 of the Act.              E

    "The Hon'ble Arbitrator has travelled beyond the terms of
    agreement and allowed the above said claims. The
    Arbitrator travelled outside the terms of the Agreement in
    awarding the claims and thereby mis-conducted himself           F
    and also the proceedings. It is submitted that the 2nd
    respondent was appointed as sole arbitrator as per the
    terms of the agreement entered into between the parties.
    Since the arbitrator is the creature of the agreement, he
    must operate his proceedings within the confines of the         G
    terms of the said agreement. His right emanates from the
    terms of the agreement only."

                                           (emphasis supplied)

Having failed to contend that there was no arbitration              H
    770    SUPREME COURT REPORTS [2010] 13 (ADDL.) S.C.R.

A agreement in the proceedings under sections 30 and 33 of
  the Act, and on the other hand having specifically conceded
  that the Arbitrator was appointed in terms of the agreement,
  the first respondent was estopped from subsequently
  contending in the appeal (filed against the order dated 8.4.1993
B rejecting the challenge to the arbitration award), that there was
  no arbitration agreement and the remedy of the contractor
  was only by way of a suit. Such a contention would be barred
  by the principle ·of res judicata as it was directly and
  substantially in issue in the proceedings under section 8 (2) of
c the Act and the decision therein had attained finality.
        14. The next question is whether the first respondent could
  have challenged the order dated 25.3.1991 passed under
  section 8(2) of the Act appointing an arbitrator by filing a
  belated petition in 1993 two years later. The issue is not one
D relating to merely delay. The issue is whether the first
  respondent having allowed the order dated 25.3.1991 to
  remain unchallenged and implemented, and having participated
  in the arbitration proceedings before the arbitrator without
  protest and without raising the contention that there was no
6 arbitration agreement, and without challenging the award on the
  ground that there was no arbitration agreement, could raise the
  issue in an appeal against the rejection of the application under
  sections 30 and 33 of the Act. The answer is clearly in the
  negative. The first respondent could not challenge the order
F dated 25.3.1991, appointing the Arbitrator, which had attained
  finality, belatedly on 17.4.1993 by contending that there was no
  arbitration agreement between the parties.

      15. We may in this context refer to the following passage
G from Russell on Arbitration, (22nd Edn., page 382):

          "Loss of right to object.

          A party who objects to the award pn the ground that the
          Tribunal lacks substantive jurisdiction, should not only act
H
  J. KODANDA RAMI REDDY v. STATE OF A.P. &                    771
         ORS. [R.V. RAVEENDRAN, J.]
    promptly but should also take care not to lose his right to       A
    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
    lose his right to object as long as he acts promptly to
    challenge the award once it is published. The former must         B
    however state his objection to the Tribunal's jurisdiction
    either forthwith or within such time as is allowed by the
    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        c
    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 .... "

We may also refer to the following observations of this Court         D
in State Bank of India vs. Ramdas [2003 (12) SCC 474} ;

    "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 without any      E
    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        f
    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."

     16. Strong reliance was placed by the first respondent on
the decision in State of Andhra Pradesh vs. Obulu Reddy -             G
2001 (10) sec   30 wherein a three-Judge Bench of this Court
had observed that even if an award had been made after the
appointment of the arbitrator by the Sub-ordinate Judge, the
award would be a nullity and stands annulled if there was no
arbitration agreement. The said decision is clearly                   H
    772    SUPREME COURT REPORTS [2010] 13 (ADDL.) S.C.R.


A   distinguishable and is inapplicable to the facts of this case. In
    Obulu Reddy, this Court was considering four appeals - two
    appeals preferred by the State of Andhra Pradesh and the
    other two preferred by the contractors. The appeals filed by the
    State Government related to cas.es where the contractors had
B   made an application before the Sub-ordinate Judge for
    appointment of an arbitrator in terms of GOM dated 24.10.1983
    and the learned Sub-ordinate Judge had appointed an arbitrator
    which were assailed by the State in the High Court contending
    that even under the GOM dated 24.10.1983, claims for more
c   than Rs.50,000/- were required to be decided by filing a suit
    and not by arbitration. The High Court rejected the said appeals
    of the State. Consequently, the State filed the two appeals and
    by the time the matters were heard by this Court, in one of those
    two appeals, the Arbitrator appointed by the Sub-ordinate
    Judge, had even made an award. In the other two appeals filed
0
    by the contractors, there was a slight variation. The Sub-ordinate
    Judge had appointed arbitrators in terms of the GOM No.403
    dated 24.10.1983 as the claims were of more than Rs.50,000/
    -. The State assailed the appointment of arbitrators before the
E   High Court. By the time, the matters came up for hearing before
    the High Court, this Court had rendered its decision in
    Vishakapatnam Urban Development Authority. Following the
    said decision, the High Court allowed the appeals and set aside
    the appointments of the arbitrator made by the Sub-ordinate
    Judge in those two cases. Those orders were challenged by
F   the contractors before this Court. The crucial difference is that
    all the four appeals considered by this Court in Obulu Reddy,
    related to cases where the order of the Sub-ordinate Judge
    under Section 8 of the Act, appointing the arbitrator had been
    challenged by the State without any delay and the High Court
G   in two of the matters had accepted the challenge and in other
    two matters rejected the challenge and that is how all four
    appeals came up before this Court. But in this case, as noticed
    above, the order under section 8(2) of the Act, by the Sub-
    ordinate Judge was not challenged and was allowed to attain
H   finality. It was challenged only after the award was made and
   J. KODANDA RAMI REDDY v. STATE OF A.P. &                    773
          ORS. [R.V. RAVEENDRAN, J.]
that award was made a rule of the court. In such circumstance,         A
the rule of finality would come into play in regard to the order
under section 8(2) of the Act appointing the Arbitrator.

      17. The observation in Obu/u Reddy that when there was
no arbitration agreement the award is a nullity, was made as           8
the state government had not accepted the existence of the
arbitration agreement at any stage and had all along challenged
the order under section 8 of the Act appointing the Arbitrator.
In this case, though the first respondent had initially contended
that there was no arbitration agreement, when the civil court          C
held that there was an arbitration agreement and appointed the
arbitrator, the first respondent did not challenge the decision,
but accepted the said position and participated in the
arbitration proceeding without protest. More importantly, when
the award was made by the Arbitrator, the first respondent filed
an application for setting aside the award wherein it admitted         D
specifically that the appointment of the arbitrator was in terms
of the agreement between the parties, but challenged the
award on other grounds. In the circumstances, when there was
an adjudication by a court of competent jurisdiction that there
was an arbitration agreement and when that was not challenged          E
and the arbitrator was allowed to proceed on the basis that
there was an arbitration agreement, and when it was
specifically conceded that the appointment of arbitrator is in
terms of the agreement between the parties, the award will not
be a nullity.                                                          F

     18. The order dated 25.3.1991 appointing an Arbitrator
was also not a nullity, even though it may be erroneous. It is
well settled that a decree will be a nullity only if it is passed by
a court usurping a jurisdiction it did not have. But a mere wrong      G
exercise of jurisdiction or an erroneous decision by a court
having jurisdiction, will not result in a nullity. An order by a
competent court, even if erroneous, is binding, unless it is
challenged and set aside by a higher forum. Be that as it may.
                                                                       H
    774     SUPREME COURT REPORTS [2010) 13 (ADDL.) S.C.R.

A        19. We are fortified in our view by the decision in 0.
    Ranganayaku/u vs. Superintending Engineer NSRC (CA No.
    1087-1088 of 2008 decided on 7.2.2008). This Court dealing
    with an identical situation held :

B         "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. Oburu Reddy - (2001) 10 SCC 30. We are Jf
          the view that the facts of that case is not applicable in the
          present case. In the case referred to by Mr. Anoop
c         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
D         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.

E         In the facts and circumstances as recited above, the
          respondents waived their rights to file an objection at the
          time when the award was made Rule of the Court."

    Conclusion :

F      20. Therefore, the order of the High Court dated 5.10.1999
  in CRP No.134 of 1995 setting aside the order dated
  25.3.1991 is liable to be set aside. When the order dated
  25.3.1991 stands restored, the consequential direction in the
  order dated 5.10.1999 of the High Court allowing CMA
G No.12590 and CRP No.4055 of 1990, becomes unsupportable
  and requires to be set aside. The High Court has to now
  consider on merits the challenge to the order rejecting the
  application under sections 30 and 33 of the Act.

          21. Therefore these appeals are allowed as follows :
H
  J. KODANDA RAMI REDDY v. STATE OF A.P. &                   775
         ORS. [R.V. RAVEENDRAN, J.]
       (a) The impugned order dated 5.10.1999 in CRP No.134         A
       of 1995 (setting aside the order dated 25.3.1991 under
       section 8(2) of the Act in O.P. No. 62/1992 on the file of
       Sub-ordinate Court, Nellore), is set aside and the said
       order dated 25.3.1991 stands restored.
                                                                    B
       (b) As a consequence, the order dated 5.10.1999 allowing
       CMA No.1251/1993 and CRP No.4055/1993 is set aside.

       (c) CMA No. 1251/1993 and CRP No.4055/1993 are
       remanded to the High Court for fresh consideration and
       disposal in accordance with law on merits.                   C

       (d) Consequently, the order dated 28.4.2000 dismissing
       the review CMP Nos.5446/2000 and 5447/2000 is set
       aside.

N.J.                                          Appeals allowed.
                                                                    D