Alternative Dispute Resolution

Narayan Prasad Lohia v. Nikunj Kumar Lohia

(2002) 3 SCC 572

Citation: (2002) 3 SCC 572
Court: Supreme Court of India
Date: 20 February 2002
Bench: S.N. Variava and B.N. Agrawal, JJ.

Facts

Members of the Lohia family had disputes concerning family businesses and property.
They agreed to submit their disputes to two named persons for arbitration.
The tribunal therefore consisted of an even number of arbitrators.
Both parties participated in the proceedings without making a timely objection to the tribunal’s composition.
The two arbitrators delivered a unanimous award.
After the award became unfavourable, one party challenged it under Section 34.
It argued that:
Section 10(1) states that the number of arbitrators “shall not be an even number”;
the two-member tribunal was therefore illegally constituted;
the defect went to jurisdiction; and
participation could not validate an arrangement prohibited by the statute.
The opposing party argued that the objection had been waived.

Issue

Whether Section 10(1) is mandatory and non-derogable.
Whether an award by two arbitrators is automatically invalid.
Whether failure to object results in waiver under Section 4.

Rule

Section 10(1) states that parties are free to determine the number of arbitrators, provided that the number shall not be even.
Section 10(2) supplies a default of one arbitrator where the parties fail to determine the number.
Not every statutory provision in Part I is non-derogable.
Section 4 provides that a party waives an objection where:
it knows that a derogable provision or contractual requirement has not been complied with; and
it proceeds without timely objection.
An objection to tribunal composition must ordinarily be raised:
during constitution;
under the agreed procedure; or
before the tribunal under Section 16.
A unanimous award by an even-numbered tribunal is not automatically void where the parties knowingly participated.

Application

The Supreme Court accepted that the parties’ arrangement did not follow the wording of Section 10(1).
The important question, however, was whether the defect could be waived.
The Act expressly identifies certain provisions that cannot be contracted out of.
Section 10 was not treated as one of those absolute prohibitions.
Its purpose is primarily practical:
to reduce the risk of a deadlock;
to facilitate majority decision-making; and
to provide an effective tribunal structure.
It is not a rule based upon public morality or a fundamental incapacity to arbitrate.
The parties themselves had selected the two arbitrators.
They knew the tribunal’s composition from the beginning.
Neither party objected before or during the proceedings.
Both presented their cases and invited a decision.
The two arbitrators then reached a unanimous conclusion, so the feared problem of a tie never arose.
Permitting a party to challenge composition only after losing would encourage tactical behaviour.
A party could:
remain silent;
test the outcome;
accept the award if favourable; and
attack the tribunal if unsuccessful.
Section 4 prevents that form of approbation and reprobation.
The Court held that the composition objection had been waived.
It clarified that parties should not ordinarily choose an even number.
If a timely objection is raised, the tribunal must be constituted according to the Act.
The judgment therefore does not recommend two-member tribunals.
It establishes that the irregularity is not automatically fatal after knowing participation.
The case also illustrates the wider arbitral principle that procedural objections must be made promptly rather than reserved as post-award weapons.

Conclusion

The Supreme Court upheld the award.
It held that the prohibition against an even number of arbitrators was derogable and capable of waiver.
By participating without timely objection, the challenging party lost the right to attack the tribunal’s composition.
Use this case for: an even-numbered tribunal is an irregularity that may be waived through knowing participation without objection.