India: Whether Cross Objection Can Be Filed Under Section 37 Of The Arbitration And Conciliation Act, 1996?

Introduction

Order 41, Rule 22¹ of the Civil Procedure Code, 1908 ("CPC") allows a party that has not preferred an appeal against a decree, to file a cross objection against the unfavourable part of the decree, which it could have taken by way of an appeal. Hence, instead of filing a separate appeal, the party files a cross objection in the appeal preferred by the other party, against an unfavourable part of the decree.

The cross objection under Order 41, Rule 22 of the CPC is treated as a separate appeal and is disposed of on the same principles of Appeal from Original Decree in accordance with Order 41² of the CPC.³

In this article authors have endeavoured to explain the concept of Cross Objection w.r.t Appeal filed under Section 37⁴ of the Arbitration and Conciliation Act, 1996, ("the Arbitration and Conciliation Act"). This article deliberates on the following issues:-

1. Whether filing of Cross Objection is maintainable in an Appeal filed under Section 37 of the Arbitration and Conciliation Act?
   
   
2. Whether analogy can be drawn from Order 41, Rule 22 of the CPC to maintain a cross objection under Section 37 of the Arbitration and Conciliation Act?

Maintainability of cross objection under Section 37 of the Arbitration and Conciliation Act

a. Maintainability of cross objection in an appeal preferred under Section 39 of the Arbitration Act, 1940

It is apposite to deliberate the position of law prevailing before the Arbitration and Conciliation Act, under the previous Arbitration Act, 1940. The Hon'ble Supreme Court ("Supreme Court") in Municipal Corporation of Delhi and others vs. International Security and Intelligence Agency Limited⁵ had inter-alia dealt with the issue of competence and maintainability of cross objections in an appeal preferred under Section 396 of the Arbitration Act, 1940.

In this regard, the Supreme Court noted that Section 41(a) of the Arbitration Act, 1940 provides that "the provisions of the Code of Civil Procedure, 1908 (V of 1908), shall apply to all proceedings before the Court, to all appeals, under Arbitration and Conciliation Act." Therefore, a bare reading of Section 41(a) of the Arbitration Act, 1940 would establish that in all the appeals filed under Section 39 of the Arbitration Act, 1940, the provisions of Order 41, Rule 22 of the CPC would be applicable. The Supreme Court also observed that the right to take a cross objection is the exercise of substantive right of appeal conferred by a statute, and the grounds of challenge against the judgment, decree or order impugned remain the same whether it is an appeal or a cross objection. The difference lies in the form and manner of exercising the right.

Hence, the Supreme Court held that a cross objection can be preferred under Section 39 of the Arbitration Act, 1940. However, the subject matter of the cross objection and relief sought must conform to the requirement of Section 39(1) of the Arbitration Act, 1940.

b. Maintainability of cross objection in an appeal preferred under Section 37 of the Act

Unlike the Arbitration Act, 1940, there is no such provision in the Arbitration and Conciliation Act to prescribe that the provisions of the CPC should apply to all the proceedings before the court and to all appeals under the Arbitration and Conciliation Act. Hence, the moot question arises that in the absence of any such provision "whether filing of cross objection under an appeal preferred in Section 37 of the Arbitration and Conciliation Act would be maintainable or sustain by seeking application of Order 41, Rule 22 of the CPC?"

The Bombay High Court in Satpal P. Malhotra and others vs. Puneet Malhotra and others⁷ inter alia decided on the maintainability of cross objection under Section 37 of the Arbitration and Conciliation Act.

In this regard, the Bombay High Court observed, "the provisions of the Code of Civil Procedure, 1908 would apply to the arbitration proceedings filed in court to the extent, it is not inconsistent with any of the provisions of the Arbitration and Conciliation Act, 1996. There is no bar under the provisions of the Arbitration and Conciliation Act from applicability of the provisions of the Code of Civil Procedure, 1908 to the arbitration proceedings filed in court. Section 19 of the Arbitration Act provides that the Arbitral Tribunal shall not be bound by the Code of Civil Procedure, 1908. The said provision does not apply to the proceedings filed in court including arbitration application filed under section 34 or even appeal under section 37 of the Arbitration and Conciliation Act, 1996." Hence, the Bombay High Court rejected the argument that in absence of the right of cross objection in Section 37 of the Arbitration and Conciliation Act the same is not maintainable.

Therefore, the Bombay High Court held that filing of cross objection is maintainable and allowed in terms of Section 37 of the Arbitration and Conciliation Act read with Order 41, Rule 22 of CPC.

Pertinently, the decision of the Bombay High Court in Satpal P. Malhotra and others vs. Puneet Malhotra and others was challenged before the Supreme Court in a Special Leave Petition⁸. While granting leave to appeal and disposing off the same vide order dated 18.05.2018, the Supreme Court set aside the Arbitral Award and appointed another Arbitrator to decide the disputes between the parties. The Supreme Court, however, did not make any specific observation with respect to either applicability of provisions of CPC or maintainability of cross-objection under Section 37 of the Arbitration and Conciliation Act.

The issue of applicability of CPC in the context of maintainability of cross objection under Section 37 of the Arbitration and Conciliation Act, was specifically dealt with by the Supreme Court in the case of Mahanagar Telephone Nigam Limited vs. Applied Electronics Limited⁹.

The Supreme Court while dealing with the applicability of the provisions of CPC with respect to proceedings taken under the provisions of the Arbitration and Conciliation Act, observed that the legislature while enacting the Arbitration and Conciliation Act has intentionally not kept any provision pertaining to the applicability of CPC.

While differing from the ratio laid down in the case of Municipal Corporation of Delhi and others vs. International Security and Intelligence Agency Limited the Supreme Court observed that the said decision was rendered in the backdrop of the Arbitration Act, 1940, and hence it is distinguishable.

Hence, the Supreme Court held that the Arbitration and Conciliation Act being a complete code in itself, the applicability of CPC is not to be conceived. Accordingly, the Supreme Court held that the application of the provisions of Order 41, Rule 22 of CPC, cannot be construed to maintain a cross objection in an appeal filed under Section 37 of the Arbitration and Conciliation Act.

The Supreme Court while rendering the above view, considered its earlier decision in ITI Limited vs. Siemens Public Communications Network Limited¹⁰ wherein the Supreme Court had inter alia held there is no express prohibition against the applicability of CPC in a proceeding arising out of the Arbitration and Conciliation Act, hence, there cannot be any inference that CPC is not applicable in matters related to the Arbitration and Conciliation Act when the express exclusion of CPC is not provided for¹¹.

The Supreme Court observed that the decision in ITI Limited vs. Siemens Public Communications Network Limited, though a binding precedent, appears to be incorrect, as the scheme of the Arbitration and Conciliation Act clearly provides otherwise and the legislative intent of the Arbitration and Conciliation Act also postulates the same.

In view of such conflict with its pervious decision, the Supreme Court observed that the views expressed in ITI Limited vs. Siemens Public Communications Network Limited deserves to be reconsidered by a larger bench. Hence, the Supreme Court placed the said issue before the Hon'ble Chief Justice of India for constitution of an appropriate larger bench, which is pending for final disposal.

Conclusion

The conflict of views in the decisions of the Supreme Court has created an air of confusion over the extent of applicability of CPC in proceedings of the Arbitration and Conciliation Act, and the consequent maintainability of cross objection under Section 37 of the Arbitration and Conciliation Act. Until date, the outcome of the reference to the larger bench is pending. Hence, it would be interesting to follow the curve that the Supreme Court takes in deciding the applicability of CPC in proceedings related to the Arbitration and Conciliation Act.

Till then, it is pertinent to mention, that the decision of the Supreme Court in Mahanagar Telephone Nigam Limited vs. Applied Electronics Limited, holds the field, which held that the filing of cross objection under Section 37 of the Arbitration and Conciliation Act is not maintainable; and that analogy cannot be drawn from the provision of Order 41, Rule 22 of the CPC, as the same is not applicable on the proceedings arising under the Arbitration and Conciliation Act.

Footnotes

1. Order 41, Rule 22, Civil Procedure Code, 1908 – Upon hearing respondent may object to decree as if he had preferred separate appeal.

2. Order 41, Civil Procedure Code, 1908 – Appeals from Original Decrees.

3. Mahadev Govind Gharge and Others vs. Special Land Acquisition Officer, (2011) 6 SCC 321.

4. Section 37(1), Arbitration and Conciliation Act, 1996 - Appealable orders - An appeal shall lie from the following orders (and from no others) to the Court authorised by law to hear appeals from original decrees of the Court passing the order.

5. Municipal Corporation of Delhi and others vs. International Security and Intelligence Agency Limited, (2004) 3 SCC 250.

6. Section 39(1), Arbitration Act, 1940 - Appealable Orders - An appeal shall lie from the following orders passed under the Arbitration and Conciliation Act (and from no others) to the Court authorized by law to hear appeals from original decrees of the Court passing the order.

7. Satpal P. Malhotra and others vs. Puneet Malhotra and others, 2013 SCC OnLine Bom 689.

8. Puneet Malhotra and others vs. Satpal P. Malhotra and others, SLP (C) No. 022334-022335 of 2013.

9. Mahanagar Telephone Nigam Limited vs. Applied Electronics Limited, (2017) 2 SCC 37.

10. ITI Limited vs. Siemens Public Communications Network Limited, (2002) 5 SCC 510.

11. Coxswain Projects and Estates Private Limited vs. N.J. Constructions, 2022 SCC Online Ker 856.

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