Holding

Section 10 is a derogable provision; failure to object under Section 16(2) results in a deemed waiver under Section 4, and an award cannot be set aside under Section 34(2)(a)(v) when the tribunal composition conforms to the parties' agreement.

Summary

The parties agreed to resolve their family business disputes by arbitration with two arbitrators and an award was rendered. The respondents later applied to the Calcutta High Court to set aside the award, arguing that the Arbitration and Conciliation Act, 1996 forbids an even number of arbitrators, making the tribunal composition invalid. The High Court set aside the award, but the Supreme Court held that Section 10, which mandates an odd number of arbitrators, is a derogable provision that can be waived if a party does not object under Section 16(2) within the prescribed time, resulting in a deemed waiver under Section 4. Consequently, the award could not be challenged under Section 34(2)(a)(v) because the composition was in accordance with the parties' agreement. The Supreme Court set aside the High Court judgments and allowed the appeal, confirming that the award stands.

Issues considered

The parties' agreement to appoint two arbitrators contravenes the mandatory provision of Section 10 of the Arbitration and Conciliation Act, 1996.
Whether a mandatory provision of the Act, such as Section 10, can be waived by the parties.
If a party fails to raise an objection to the composition of the arbitral tribunal under Section 16(2), does it amount to a waiver under Section 4?
Whether Section 34(2)(a)(v) permits setting aside an award when the tribunal composition aligns with the parties' agreement but conflicts with a non‑derogable statutory provision.

Legislation cited

Arbitration and Conciliation Act, 1996s. 10, s. 11, s. 12, s. 13, s. 16, s. 34, s. 4, s. 5

Subjects

ArbitrationComposition of arbitral tribunalWaiver of objectionSection 10 derogable provisionSection 16 challengeSection 34 award setting asideMandatory provisionNon‑derogable clause

Judgment

A NARYAN PRASAD LOHIA
v.
NIKUNJ KUMAR LOHIA AND ORS.

FEBRUARY 20, 2002

B [G.B. PATIANAIK, S.N. PHUKAN AND S.N. VARIAVA, JJ.]

Arbitration and Conciliation Act, 1996-Ss. 4, 5, JO, II, 16 and 34
(2)(a)(v)-Composition ofArbitral Tribunal-Right to objection-Waiving of-
C Dispute-Arbitration by two Arbitrators-Award-Challenge before High Court
on the ground that there could not be an even member of Arbitrators under
the Act-Objection not raised before the Arbitral Tribunal-High Court setting
aside theaward:validi@of-Held, if a party does not object to the composition
of the tribunal before the Arbitral Tribunal itself within the prescribed time,
there is deemed waiving of right to objection-Award can be set aside under
D section 34 (2)(a)(v) of the Act only if the Arbitral Tribunal or procedure were
not in accordance with the agreement between the parties.

The issued involved in the present appeal is whether a mandatory
provision of the Arbitration and conciliation Act, 1996 can be waived by the
parties.
E
Appellant and the respondents agreed to resolve their disputes through
two Arbitrators and an Award was passed. Subsequently, respondents filed
an application in the High Court for setting aside the award on the ground
that under the Act there could not be an even number of Arbitrators. Single
F judge of the High Court set aside the award. Appeal before the Division Bench
of the High Court was dismissed. Hence the present appeal Since the question
involved was an important question of law, the matter was referred to a three-
judge Bench.

On behalf of appellant it was contended that if an objection to the
G composition of the Arbitral Tribunal was not raised before the Arbitral
Tribunal itself within the prescribed time laid down under S. 16(2), then the
party could be deemed to have waived its right to object by virtue of s.4; that
s.34(2)(a)(v) of the Act did not permit the setting aside of an award on the
ground of composition of the Arbitral Tribunal if the composition was in
accordance with the agreement of the parties and since in the instant case
H 1136
~-

NARA YAN PRASAD LOHIA v. NIKlJNJ KUMAR LOHIA 113 7
the composition was in accordance with the agreement of the parties, the A
award could not be set aside.

On behalf of respondents it was contended that an agreement which
permits the parties to appoint an even number <>f arbitrators would be
cmitrary to the mandatory provisions of 5.10 of the Act which could not be
derogated; that s.16 did not provide for any challenge to the composition of B
the Arbitral Tribunal and since an invalid composition of the Arbitral
Tribunal goes to the root of the jurisdiction, High Court was justified in setting
aside the Award.

Answering the question of law referred to, the Court.

HELD : 1. Coder Section 16 of the Arbitration and conciliation Act, a
c
party can challenge the composition of the arbitral tribunal before the arbitral
tribunal itself. Such challenge must be taken, under Section 16(2), not later
than the submission of the statement of defence. Section 16(2) makes it clear
that such a challenge can be taken even though the party may have
participated in the appointment of the arbitrator and/or may have himself D
appointed the arbitrator. A party would be free, if he so chooses not to raise
such a challenge. Thus, a conjoint reading of Sections 10 and 16 shows that
an objection to the composition of the arbitral tribunal is a matter which is
derogable. It is derogable because a party is free not to object within the time
prescribed in Section 16(2). If a party chooses not to so object there will be a E
deemed waiver under section 4. Thus, it cannot be accepted that Section 10
is a non-derogable provision. Section 10 has to be read along with Section 16
and is, therefore, a derogable provision. In the instant case respondents not
having raised any objection to the composition of the arbitral tribunal, as
provided in Section 16, they must be deemed to have waived their right to
object. 11148-D-FJ F
Konkan Railway Corporation ltd v. Rani Construction Pvt. ltd, 12002) l
scale 465, relied on.

2. Even if parties provide for appointment of only two arbitrators, that
does not mean that the agreement becomes invalid. There is no reason, why G
the two arbitrators cannot appoint a third arbitrator at a later stage i.e. if
., and when they differ. This would ensure that on a difference of opinion the
arbitration proceedings are not frustrated. But if the two Arbitrators agree
and give a common award there is no frustration of the proceedings. In such
a case their common opinion would have prevailed, even ifthe third arbitrator,
presuming there was one, had differed. Thus there would be no waste of time,
1138 SUPREME COURT REPORTS [2002] I S.C.R.

A money and expense if a party, with open eyes, agrees to go to Arbitration ·of
two persons and then participates in the proceedings. On the contrary there
would be waste of time, money and energy if such a party is allowed to resile
because the Award is not of his liking. Allowing such a party to resile would
not be in furtherance of any public policy and would be most inequitable.
(1149-E-F]
B
3. Section 34(2)(a)(v) only applies if "the composition of the arbitral
tribunal or the arbitral procedure was not in accordance with the agreement
of the parties". If the composition of the arbitral tribunal or the arbitral
procedure is in accordance with the agreement of the parties, as in this case,
C then there can be no challenge under this provision. But even in such a case
the right to challenge the award is restricted. There could be a challenge,
provided the agreement of the parties is in conflict with a provision of Part I
which the parties cannot derogate. In other words, 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
D with the provision of the said Act, then the party cannot challenge the award.
The words "failing such agreement" have reference to an agreement providing
for the composition of the arbitral tribunal or the arbitral procedure. They
would come into play only if there is no agreement providing for the
composition of the arbitral tribunal or the arbitral procedure. If there is no
E agreement providing_ for the composition of the arbitral tribunal or the arbitral
procedure and the composition of the arbitral tribunal or the arbitral
procedure was not in accordance with Part I of the said Act then also a
challenge to the award would be available. Thus so long as the composition
of the arbitral tribunal or the arbitral procedure are in accordance with the
agreement of the parties, Section 34 does not permit challenge to an award
F merely on the ground that the composition of the arbitral tribunal was in
conflict with the provisions of Part I of the said Act. This also indicates that
Section 10 is a derogable provision. 11150-F-H; 1151-A-CI

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1382 of
2002.
G WITH
C.A. No. 1384 of 2002. ..
From the Judgment and Order dated 18.5.2000 of the Kolkata High
Court in A.P.O. No. 620 of 1999.
H Rakesh Dwivedi, Manoj Saxena, Ms. Nadira Patharia and Pravir
NARAYAN PRASAD LOHIA v. NJKUNJ KUMAR LOHIA [VARIA VA, J.] 1139

Choudhary for the Appellant. A
Kailash Vasdev, K.K. Venugopal, S. Singhvi, K.V. Vijay Kumar, P.N.
Misra, Anil Agarwal and Ms. Bina Madhavan, Jaideep Gupta and Ms. Neeru
Vaid for the Respondents.

The Judgments of the Court was delivered by B
S.N. VARIAVA, J. Leave granted.

This Appeal is against a Judgement dated 18th May, 2000.

Briefly stated the facts are as follows :

The Appellant and the Respondents are family members who had
c
disputes and differences in respect of the family businesses and properties.
All the parties agreed to resolve their disputes and differences through one
Mr. Pramod Kumar Khaitan. Subsequently, on 29th September 1996 they
agreed that the said Mr. Pramod Kumar Khaitan and one Mr. Sardul Singh
Jain resolve their disputes. For the purposes of this Order we are not deciding D
whether these two persons acted as Arbitrators or Mediators. That is a matter
of contention between the parties which we are, at present, not called upon
to decide. For the purposes of this order we are presuming that the parties
had agreed to the Arbitration of these two persons.

The parties made their respective claims before these two persons. All E
parties participated in the proceedings. On 6th October, 1996 and Award
came to be passed by the said Mr. Pramod Kumar Khaitan and Mr. Sardul
Singh Jain.

On 22nd December, 1997 the I st Respondent filed an Application in
the Calcutta High Court for setting aside the Award dated 6th October, 1996. F
On 17th January, 1998 the 2nd Respondent filed an Application for setting
aside this Award. One of the grounds, in both these applications, was that the
Arbitration was by two Arbitrators whereas under the Arbitration and
Conciliation Act, 1996 (hereinafter called the said Act) there cannot be an
even number of arbitrators. It was contended that an arbitration by two G
arbitrators was against the statutory provision of the said Act and therefore
void and invalid. It was contended that consequently the Award was
" unenforceable and not binding on the parties. These contentions found favour
with a single Judge of the Calcutta High Court who set aside the Award on
17th November, 1998. On 18th May, 2000 the Appeal was also dismissed.
Hence this Appeal to this Court. H
1140 SUPREME COURT REPORTS [2002] I S.C.R. ·,

A When this matter reached hearing on 16th January, 2002, the following
Order has been passed by this Court :

"Substitution applications are allowed.

A similar question, as is involved in this case, came up before a
B Bench of this Court in the case of Dodsal Private Ltd v. Delhi
Electric Supply Undertaking of the Municipal Corporation of Delhi,
(1996] 2 SCC 576. In that case this Court felt that the question
whether a mandatory provision of the Arbitration Act can at all be
waived requires consideration by a larger Bench in view of an earlier
judgment of this Court in Waverly Jute Mills Co. Ltd v. Raymon and
c Co. (India) Pvt. ltd., [1963) 3 SCR 209. In the said view of the
matter the Bench referred the question to a larger Bench of this
Court. It is now noticed that the said Constitution Bench, which was
seized of the referred case, did not decide that issue as could be seen
from its decision dated 19th July, 1996 in Dodsal Private ltd. v.
Delhi Electric Supply Undertaking of the Municipal Corporation of
D
Delhi, Civil Appeal Nos. 2372-2374 of 1987 (1996) 7 SCALE (SP)
I, but decided the issue on other grounds.

Since that question has not yet been decided and question involved
is an important question of law likely to arise in future cases, we feel
E it appropriate that this issue should be decided by larger Bench, of at
least three Hon'ble Judges and hence, refer the petitions, namely,
SLP (C) 12384 and 13123 of 2000 to a Bench of three Hon'ble
Judges.

Accordingly, the Registry is directed to place the papers before
p Hon 'ble the Chief Justice for suitable orders."

Accordingly, this matter is before this Bench. At this stage we are only
deciding the question of law referred i.e. whether a mandatory provision of
the said Act can be waived by the parties.

G It would be appropriate to set out, at this stage, the relevant provisions
of the said Act. Sections 4, 5, I 0, 11, 16 and 34 read as follows :

"4. Waiver of right to object.- -A party who knows that-

(a) any provision of this Part from which the parties may derogate,
or
H
NARA YAN PRASAD LOHIA v. NIKUNJ KUMAR LOHIA [VARIA VA, J.] 1141

(b) any requirement under the arbitration agreement, A
has not been compiled with and yet proceeds with the arbitration without
stating his objection to such non-compliance without undue delay or, if a
time limit is provided for stating that objection, within that period of time,
shall be deemed to have waived his right to so object.
B
S. Extent ofjudicial intervention.-Notwithstanding anything contained
in any other law for the time being in force, in matters governed by this Part,
no judicial authority shall intervene except where so provided in this Part.

10. Number of arbitrators-{!) The parties are free to determine the
number of arbitrators, provided that such number shall not be an even number. C
(2) Failing the determination referred to in sub-section (1), the arbitral
tribunal shall consist of a sole arbitrator.

11. Appointment of arbitrators-{!) A person of any nationality may
be an arbitrator, unless otherwise agreed by the parties. D
(2) Subject to sub-section (6), the parties are free to agree on a procedure
for appointing the arbitrator or arbitrators.

(3) Failing any agreement referred to in sub-section (2), in an arbitration
with three arbitrators, each party shall appoint one arbitrator, and the two E
appointed arbitrators shall appoint the third arbitrator who shall act as the
presiding arbitrator.

(4) If the appointment procedure in sub-section (3) applies and-

(a) a party fails to appoint an arbitrator within thirty days from the F
receipt of a request to do so from the other party; or
(b) the two appointed arbitrators fail to agree on the third arbitrator
within thirty days from the date of their appointment,

the appointment shall be made, upon request of a party, by the Chief Justice
or any person or institution designated by him. G
(5) Failing any agreement referred to in sub-section (2), in an arbitration
, with a sole arbitrator, if the parties fail to agree on the arbitrator within thirty
days from receipt of a request by one party from the other party to so agree
the appointment shall be made, upon request of a party, by the Chief Justice
H
1142 SUPREME COURT REPORTS [2002] I S.C.R.

A or any peison or institution designated by him.
(6) Where, under an appointment procedure agreed upon by the
parties,-

(a) a party fails to act as required under that procedure; or
B (b) the parties, or the two appointed arbitrators, fail to reach an
agreement expected of them under that procedure; or

(c) a person, including an institution, fails to perform any function
entrusted to him or it under that procedure,

C a party may request the Chief Justice or any person or institution designated
by him to take the necessary measure, unless the agreement on the appointment
procedure provides other means for securing the appointment.

(7) A decision on a matter entrusted by sub-section (4) or sub-section
(5) or sub-section (6) to the Chief Justice or the person or institution designated
D by him is final.

(8) The Chief Justice or the person or institution designated by him, in
appointing an arbitrator, shall have due regard to--

(a) any qualifications required of the arbitrator by the agreement of
E the parties; and

(b) other considerations as are likely to secure the appointment of an
independent and impartial arbitrator.

(9) In the case of appointment of sole or third arbitrator in an
F international commercial arbitration, the Chief Justice of India or the person
or institution designated by him may appoint an arbitrator of a nationality
other than the nationalities of the parties where the parties belong to different
nationalities.

(10) The Chief Justice may make such scheme as he may deem
G appropriate for dealing with matters entrusted by sub-section (4) or sub-
section (5) or sub-section (6) to him.

(11) Where more than one request has been made under sub-section (4)
or sub-section (5) or sub-section (6) to the Chief Justices of different High
Courts or their designates, the Chief Justice or his designate to whom the
H request has been first made under the relevant sub-section shall alone be
NARA YAN PRASAD LOHIA v. NIKUNJ KUMAR LOHIA IVARIA VA, 1] 1143
competent to decide on the request. A
(12) (a) Where the matters referred to in sub-sections (4), (5), (6), (7),
(8) and (10) arise in an international commercial arbitration, the reference to
"Chief Justice" in those sub-sections shall be construed as a reference to the
"Chief Justice of India".
B
(b) Where the matters referred to in sub-sections (4), (5), (6), (7), (8)
and (10) arise in any other arbitration, the reference to "Chief Justice" in
those sub-sections shall be construed as a reference to the Chief Justice of the
High Court within whose local limits the principal Civil Court referred to in
clause (e) of sub-section (1) of section 2 is situate and, where the High Court C
itself is the Court referred to in that clause, to the Chief Justice of that High
Court."

16. Competence of arbitra/ tribunal to rule on its jurisdiction.-(!) The
arbitral tribunal may rule on its own jurisdiction, including ruling on any
objections with respect to the existence or validity of the arbitration agreement, D
and for that purpose,-

(a) an arbitration clause which forms part of a contract shall be treated
as an agreement independent of the other terms of the contract;
and

(b) a decision by the arbitral tribunal that the contract is null and E
void shall not entail ipso jure the invalidity of the arbitration
clause.

(2) A plea that the arbitral tribunal does not have jurisdiction
shall be raised not later than the submission of the statement of defence;
however, a party shall not be precluded from raising such a plea F
merely because that he has appointed, or participated in the

- appointment of, an arbitrator.

(3) A plea that the arbitral tribunal is exceeding the scope of its
authority shall be raised as soon as the matter alleged to be beyond
the scope of its authority is raised during the arbitraJ.proceedings. G
(4) The arbitral tribunal may, in either of the cases referred to in
sub-section (2) or sub-section (3), admit a later plea if it considers the
delay justified.

(5) The arbitral tribunal shall decide on a plea referred to in sub- H
1144 SUPREME COURT REPORTS [2002] I S.C.R.

A section (2) or sub-section (3) and, where the arbitral tribunal takes a
decision rejecting the plea, continue with the arbitral proceedings and
'
make an arbitral award.

( 6) A party aggrieved by such an arbitral award may make an
application for setting aside such an arbitral award in accordance
B with section 34.

34. Application for setting aside arbitral award.-{I) Recourse to a
court against an arbitral award may be made only by an application for
setting aside such award in accordance with sub-section (2) and sub-
section (3 ).
c
(2) An arbitral award may be set aside by the court only if-

(a) the party making the application furnishes proof that-

(i) a party was under some incapacity; or
D
(ii) the arbitration agreement is not valid under the law to which
..
the parties have subjected it or, failing any indication thereon,
under the law for the time being in force; or

(iii) the party making the application was not given proper notice
E of the appointment of an arbitrator or of the arbitral
proceedings or was otherwise unable to present his case; or

(iv) the arbitral award deals with a dispute not contemplated by
or not falling within the terms of the submission to arbitration,
or it contains decisions on matters beyond the scope of the
F submission to arbitration;

Provided that, if the decisions on matters submitted to
arbitration can be separated from those not so submitted,
only that part of the arbitral award which contains decisions
on matters not submitted to arbitration may be set aside; or
G
(v) the composition of the arbitral tribunal or the arbitral
procedure was not in accordance with the agreement of the
parties, unless such agreement was in conflict with a provision
of this Part from which the parties cannot derogate, or, falling
H such agreement, was not in accordance with this Part; or
NARAYAN PRASAD LOHIA v. NlKUNJ KUMAR LOH!A [VARlAVA, J.] J ]45

(b) the court finds that- A
(i) the subject-matter of the dispute is not capable of settlement
by arbitration under the law for the time being. in force, or

(ii) the arbitral award is in conflict with the public policy of
India."
B
The said Act was enacted to consolidate and amend the law relating to domestic
and international commercial arbitration and for matters connected therewith
and incidental thereto. One of the objects of the said Act is to minimise the
role of Courts in the arbitration process. It is with this object in mind that
Section 5 has been provided. Judicial authorities should not interfere except C
where so provided in the Act. Further Section 34 categorically provides that
the award can be set aside by the Court only on the grounds mentioned
therein. Therefore one of the aspects which would have to be considered is
whether the 1st and 2nd Respondents case fell within any of the categories
provided under Section 34.
D
Mr. Venugopal submits that Section 10 of the said Act is a mandatory
provision which cannot be derogated. He points out that even though the
parties are free to detennine the number of arbitrators such number cannot
be an even number. He submits that any agreement which permits the parties
to appoint an even number of arbitrators would be contrary to this mandatory
provision of the said Act. He submits that such an agreement would be E
invalid and void as the Arbitral Tribunal would not have been validly
constituted. He submits that composition of the arbitral tribunal itself being
invalid the proceedings and the A ward, even if one be passed, would be
invalid and uneforceable.

Mr. Venugopal submits that Section 4 of the said Act would only apply
F
provided:

. (a) a party knew that he could derogate from any provision. of this
Part or

(b) a party knew that any requirement under the arbitration agreement G
had not been complied with

and the party still proceeded with the arbitration. He submits that, this case
does not fall under category (b) above. He submits that even category (a)
would not apply because waiver can only be in respect of a matter from
which a party could derogate. He submits that in respect of provisions which H
1146 SUPREME COURT REPORTS [2002] I S.C.R.

A are non-derogable there can be no waiver. He Submits that Section I 0 is a
provision from which a party cannot derogate. He submits that matters from
which a party cannot derogate are those provided in Sections 4, 8, 9, IO,
11(4) and (6), 12, 13(4), 16(2), (3) and (5), 22(4), 27, 31, 32, 33 34(2) and
(4), 35, 36, 37, 38(1) and 43(3). He submits that as against this matters from
B which a party can derogate are those provided under Section 11(2), 19(1) and
(2), 20(1) and (2), 22(1), 24, 25, 26 and 31(3).

Mr. Venugopal submits that Section 10 compulsorily precludes
appointment of an even number of Arbitrators in public interest and as a
matter of public policy. He submits that if there are an even number of
c Arbitrators there is a high possibility that, at the end of the arbitration, they
•
may differ. He submits that in such a case parties would then be left remediless
and would have to start litigation or a. fresh arbitration all over again. He
submits that this would result in a colossal waste of time, money and energy.
He submits that to avoid such waste of time, money and energy the Legislature
has, in public policy, provided in a non-derogatory manner, that the number
D of arbitrators shall not be even.

He submits Section 16 does not provide for any challenge to the
composition of the arbitral tribunal. He submits that a reading of Section
34(2)(a)(v) shows that the Legislature contemplated a challenge to the
composition of the arbitral tribunal. He submits that significantly Section 16
E
does not provide for a challenge to the composition of the arbitral tribunal.
He submits that an invalid composition of the arbitral tribunal goes to the
root of the jurisdiction. He submits that an arbitral tribunal which has been
illegal constituted would have no jurisdiction or power to decide on the
question of its inherent lack of jurisdiction. He submits that Section 16 does
F not cover and would not govern such a challenge. Mr. Venugopal submits
that the High Court was right in setting aside the Award on this ground. He
submits that this Court should not interfere.
..
On the other hand, Mr. Dwivedi submits that Section 4, 10 and 16 are
part of the integrated scheme provided in the said Act. He submits that the
G provisions have to be read in a manner whereby there is no conflict between
any of them or by which any provision is not rendered nugatory. He submits
that undoubtedly Section 10 provides that there should not be an even number /r

of arbitrators. He points out that Section I 0 starts with the words "The parties
are free to determine the number of arbitrators". He submits that arbitration
H is a matter of agreement between the parties. He submits that generally, in
NARA YAN PRASAD LOHIA v. NIKUNJ KUMAR LOHIA [VARIA VA, J.] 114 7
an arbitration, the parties are free to determine the number of arbitrators and A
the procedure. Parties could agree upon an even number of arbitrators. He
submits that even after a party has agreed to an even number of arbitrators
he can still object to the composition of the arbitral tribunal. He submits that
such objection must be taken before the arbitral tribunal not later than the
date of submission of the statement of defence. He points out that under B
Section 16(2) such an objection can be taken even though the parties had
appointed or participated in the appointment of the arbitrator. He submits that
the wording of Section 16 are wide enough to cover even an objection to the
composition of the arbitral tribunal. He submits that a conjoint reading of
Section 4, 10, and 16 indicates that if an objection is not taken before the
• arbitral tribunal, within the time laid down under Section 16(2) then the party C
would be deemed to have waived its right to object by virtue of Section 4.
He submits that an award could be challenged on ground of composition of
the arbitral tribunal only provided that an objection is first taken before the
arbitral tribunal under Section 16 and the arbitral tribunal has rejected such
an objection.
D
Mr. Dwivedi submits that Section 34 (2)(a)(v) does not permit the
setting aside of an award on the ground of composition of the arbitral tribunal
if the composition was in accordance with the agreement of the parties. He
submits that Section 34(2)(a)(v) would come into play only if the composition
was not in accordance with the agreement of the parties. He points out that E
in this case the composition is in accordance with the agreement of the
parties and, therefore, the award cannot be set aside on this ground. Mr.
Dwivedi submits that even presuming that Section 34(2)(a)(v) permitted a
challenge on the ground of composition of the arbitral tribunal, still the Court
may refuse to set aside the award. He points out that the words used, in
Section 34, are "an arbitral award may be set aside by the Court". He submits F
that in this case the Respondents had entered into such an agreement. He
submits that they had participated in the arbitral proceedings without any
objection. He submits that there could be no law which permits a party who
has so appointed and participated to then resile and seek to have the award
set aside. He submits that it would be against public policy to permit waste G
of time, money and energy spent in the arbitration by having the award set
aside. He submits that it would also be inequitable to permit such a party to
challenge the award on this ground. He submits that the impugned Orders of
the High Court cannot be sustained and require to be set aside.

We have heard the parties at length. We have considered the submissions. H
1148 SUPREME COURT REPORTS (2002] I S.C.R.

A Undoubtedly, Section IO provides that the number of arbitrators shall not be
an even number. The question still remains whether Section 10 is a non-
derogable provision. In our view the answer to this question would depend
on question as to whether, under the said Act, a party has a right to object
to the composition of the arbitral tribunal, if such composition is not in
B accordance with the said Act and if so at what stage. It must be remembered
that arbitration is a creature of an agreement. There can be no arbitration
unless there is an arbitration agreement in writing between the parties.

In the said Act, provisions have been made in Sections 12, 13, and 16
for challenging the competence, impartially and jurisdiction. Such challenge
C must however be before the arbitral tribunal itself.

It has been held by a Constitution Bench of this Court, in the case of
Konkan Railway Corporation ltd. v. Rani Construction Pvt. ltd. (Judgment
dated 30th January, 2002 in Civil Appeal Nos. 5880-5889 of 1997) that
Section 16 enables the arbitral tribunal to rule on its own jurisdiction. It has
D been held that under Section 16 the arbitral tribunal can rule on any objection
with respect to existence or validity of the arbitration agreement. It is held
that the arbitral tribunals authority under Section 16, is not confined to the
width of its jurisdiction but goes also to the root of its jurisdiction. Not only
this decision is binding on this Court, but we are in respectful agreement with
E the same. Thus it is no longer open to contend that, under Section 16, a party
cannot challenge the composition of the arbitral tribunal before the arbitral
tribunal itself. Such a challenge must be taken, under Section 16(2), not later
than the submission of the statement of defence. Section 16(2) makes it clear
that such a challenge can be taken even though the party may have participated
in the appointment of the arbitrator and/or may have himself appointed the
F arbitrator. Needless to state a party would be free, if he so choose, not to raise
such a challenge. Thus a conjoint reading of Sections I 0 and 16 shows that
an objection to the composition of the arbitral tribunal is a matter which is
derogable. It is derogable because a party is free not to object within the time
prescribed in Section 16(2). If a party chooses not to so object there will be
a deemed waiver under Section 4. Thus, we are unable to accept the submission
G that Section IO is a non-derogable provision. In our view Section 10 has to
be read along with Section 16 and is, therefore, a derogable provision. ~

We are also unable to accept Mr. Venugopal's argument that, as a
matter of public policy, Section 10 should be held to be non-derogable. Even
H though the said Act is now an integrated law on the subject of Arbitration,
NARA YAN PRASAD LOHIA v. NIKUNJ KUMAR LOHIA [VARIA VA, J.] 1149

it cannot and does not provide for all contingencies. An arbitration being a A
creature of agreement between the parties, it would be impossible for the
Legislature to cover all aspects. Just by way of example Section 10 pennits
the parties to detennine the number of arbitrators, provided that such number
is not an even number. Section 11 (2) pennits parties to agree on a procedure
for appointing the arbitrator or arbitrators. Section 11 then provides how B
arbitrators are to be appointed if the parties do not agree on a procedure or
if there is failure of the agreed procedure. A reading of Section 11 would
show that it only provides for appointments in cases where there is only one
arbitrator or three arbitrators. By agreement parties may provide for
appointment of 5 or 7 arbitrators. If they do not provide for a procedure for
their appointment or there is failure of the agreed procedure, then Section 11 C
does not contain any provision for such a contingency. Can this be taken to
mean that the Agreement of the parties is invalid. The answer obviously has
to be in the negative. Undoubtedly the procedure provided in Section 11 will
mutatis mutandis apply for appointment of 5 to 7 or more arbitrators. Similarly
even if parties provide for appointment of only two arbitrators, that does not
mean that the agreement becomes invalid. Under Section 11 (3) the two D
arbitrators should then appoint a third arbitrator who shall act as the presiding
• arbitrator. Such an appointment should preferably be made at the beginning.
However, we see no reason, why the two arbitrators cannot appoint a third
arbitrator at a later stage i.e. if and when they differ. This would ensure that
on a difference of opinion the arbitration proceedings are not frustrated. But E
if the two Arbitrators agree and give a common award there is no frustration
of the proceedings. In such a case their common opinion would have prevailed,
even if the third arbitrator, presuming there was one, had differed. Thus we
do not see how there would be waste of time, money and expense if a party,
with open eyes, agrees to go to Arbitration of two persons and then participates
in the proceedings. On the contrary there would be waste of time, money and F
energy if suet> a party is allowed to resile because the Award is not of his
liking. Allowing such a party to resile would not be in furtherance of any
public policy and would be most inequitable.

Even otherwise, under the said Act the grounds of challenge to an G
arbitral award are very limited. Now an award can be set aside only on a
ground of challenge under Section 12, 13 and 16 provided such a challenge
is first raised before the arbitral tribunal and has been rejected by the arbitral
tribunal. The only other provision is Section 34 of the said Act. The only
ground, which could be pressed in service by Mr. Venugopal, is that provided
under Section 34(2)(a)(v). Section 34(2)(a)(v) has been extracted hereinabove. H
1150 SUPREME COURT REPORTS [2002] I S.C.R.

A According to Mr. Venugopal if the composition of the arbitral tribunal or the
arbitral procedure, even though it may be in accordance with the agreement
of the parties, is in conflict with a provision of the Act from which the parties
cannot derogate, then the party is entitled to have the award set aside. He
submits that the words "unless such agreement was in conflict with a provision
of this Part from which the parties cannot derogate" as well as the words
B "failing such agreement" show that an award can be set aside if the agreement
is in conflict with a provision of Part I of the said Act or if there is no
agreement which is in consonance with the provisions of Part I of the said
Act. In other words, according to Mr. Venugopal, even if the composition or
procedure is in accordance with the agreement of the parties an award can be
C set aside if the composition or procedure is in conflict with the provisions of
Part I of the said Act. According to Mr. Venugopal the words "failing such
agreement" do not mean that there should be no agreement in respect of the
composition of the tribunal or the arbitral procedure. According to Mr.
Venugopal, an agreement in respect of the composition of the arbitral tribunal
or arbitral procedure which is not in consonance with a provision of Part I
D of the said Act would be invalid in law and therefore would be covered by
the phrase "failing such agreement". He submits that the words "failing such
agreement" mean failing an agreement which is in consonance with a provision
of Part I of the said Act. He submits that Section 34(2)(a)(v) entitles the
Respondents to challenge the award and have it set aside.
E
In our view, Section 34(2Xa)(v) cannot be read in the manner as
suggested. Section 34(2)(aXv) only applies if"the composition of the arbitral
tribunal or the arbitral procedure was not in accordance with the agreement
of the parties". These opening words make it very clear that if the composition
of the arbitral tribunal or the arbitral procedure is in accordance with the
F agreement of the parties, as in this case, then there can be no challenge under
this provision. The question of "unless such agreement was in conflict with
the provisions of this Act" would only arise if the composition of the arbitral
tribu1al or the arbitral procedure is not in accordance with the agreement of
the parties. When the composition or the procedure is not in accordance with
-
the agreement of the parties then the parties get a right to challenge the
G award. But even in such a case the right to challenge the award is restricted.
The ;:hallenge can only be provided the agreement of the parties is in conflict
with a provision of Part I which the parties cannot derogate. In other words,
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
H procedure is in accordance with the provisions of the said Act, then the party
NARAYAN PRASADLOHJA v. NIKUNJ KUMARLOHIA [VARIAVA, J.] 1151
cannot challenge the award. The words "failing such agreement" have reference A
to an agrei;ment providing for the composition of the arbitral tribunal or the
arbitral procedure. They would come into play only if there is no agreement
providing for the composition of the arbitral tribunal or the arbitral procedure.
ff there is no agreement providing for the composition of the arbitral tribunal
or the arbitral procedure and the composition of the arbitral tribunal or the B
arbitral procedure was not in accordance with Part I of the said Act then also
a challenge to the award would be available. Thus so long as the composition
of the arbitfal tribunal or the arbitral procedure are in accordance with the
agreement of the parties, Section 34 does not permit challenge to an award
merely on the ground that the composition of the arbitral tribunal was in
conflict with the provisions of Part I of the said Act. This also indicates that C
Section 10 is a derogable provision.

Respondents I and 2 not having raised any objection to the composition
of the arbitral tribunal, as provided in Section 16, they must be deemed to
have waived their right to object.
D
For the reasons aforesaid, the Judgments of the learned single Judge
and the Division Bench on the question of law discussed cannot be sustained.
They are accordingly set aside.

The appeal be now placed before a Bench of two Judges for consideration
of other aspects which are stated to have been raised.

S.V.K. Appeals disposed of.