Bombay High Court
Suryadeep Engineering Private Limited vs M/S Nm Construction on 10 January, 2025
2025:BHC-OS:394
F-J-2-OSCARBP-210-2024.doc
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
COMMERCIAL ARBITRATION PETITION NO. 210 OF 2024
Suryadeep Engineering Pvt. Ltd. ...Petitioner
Versus
NM Construction ...Respondent
WITH
INTERIM APPLICATION NO. 38622 OF 2024
IN
COMMERCIAL ARBITRATION PETITION NO. 210 OF 2024
Mr. Akash Menon, Advocate for the Petitioner.
Mr. Shyam Kapadia, a/w Gaurav Jain, Ashwath Reddy, Dhrupad
Vaghani, Advocate for Respondent.
CORAM: SOMASEKHAR SUNDARESAN, J
RESERVED ON: JANUARY 2, 2025
PRONOUNCED ON: JANUARY 10, 2025
JUDGEMENT:
(Per, Somasekhar Sundaresan J.)
The Controversy:
1. The validity of an award passed by an arbitrator appointed
Digitally
signed by
ASHWINI
ASHWINI JANARDAN
JANARDAN VALLAKATI
VALLAKATI Date:
2025.01.10
13:54:45
unilaterally by the party invoking arbitration under an arbitration
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F-J-2-OSCARBP-210-2024.docagreement that does not envisage unilateral appointment, is under
challenge in this Petition under Section 34 of the Arbitration and
Conciliation Act, 1996 (“the Act”). For the reasons recorded below, I
hold that such Award deserves to be set aside, being a product of a
process that is a patent contravention of the Act, and its finely nuanced
scheme.
Factual Matrix:
2. The factual matrix for adjudication of this petition may be
summarized as follows:
a) Sometime in 2013, a listed company called Pratibha
Industries Limited (“PIL”) was awarded two work orders by
the Public Health Engineering Department, Government of
Rajasthan. It is a matter of record that PIL is currently under
liquidation under the Insolvency and Bankruptcy Code, 2016;
b) PIL awarded the Petitioner some part of the work
orders awarded by the Government of Rajasthan. The
Respondent claims to have “facilitated” the sub-contract work
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F-J-2-OSCARBP-210-2024.docfrom PIL, for which it claims “facilitation consideration” (the
Petitioner characterises this as a “commission / bribe”);
c) According to the Respondent, a Memorandum of
Understanding dated January 15, 2019 (” MOU”) had been
executed between the Petitioner and Respondent, under
which the facilitation consideration was payable, as a
percentage of the value of work awarded by PIL to the
Petitioner;
d) According to the Petitioner, no such MOU was
executed, and the Petitioner had appointed the Respondent to
execute “certain petty works” in connection with the
Petitioner’s work on PIL’s projects. A first information report
has been filed with the Jaipur Police alleging that the MOU
claimed by the Respondent is a product of forgery and
fabrication;
e) It is common ground that the Petitioner paid the
Respondent a sum of Rs.25,75,500/- (Rs~25.75 Lakhs) by end
of January 2020. The Petitioner asserts this was for the “petty
works” assigned to the Respondent while the Respondent
asserts that this was part payment of the facilitation
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f) Between May 15, 2021 and June 21, 2021, the
Respondent raised multiple demands on the Petitioner to
make payments towards “consideration for facilitation of
projects”. The Respondent contended that the Petitioner
ought to have kept the Respondent informed about the status
and progress of the projects as well as money receipts from
PIL to the Petitioner. The Respondent called upon the
Petitioner to provide bank statements to show the receipts
from PIL. PIL having gone insolvent and bankrupt, the
Respondent did not have access to such proof from PIL;
g) On July 2, 2021 the Respondent invoked arbitration,
recommending one Mr. A. Jagannathan, based in Bangalore,
as a sole Arbitrator to resolve the disputes and differences
between the parties pursuant to the arbitration clause (Clause
7) in the MOU;
h) On August 10, 2021, the Petitioner addressed a letter
to Mr. Jagannathan purporting to appoint him as the Sole
Arbitrator and on September 3, 2021, Mr. Jagannathan
appears to have informed the parties that the first hearing
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i) On September 7, 2021 the Petitioner is said to have
addressed a letter to the Respondent stating that the
Petitioner was rejecting the appointment of the sole
Arbitrator. According to the Respondent this letter was not
received by him;
j) On September 13, 2021, Mr. Jagannathan conducted a
hearing, which was not attended by the Petitioner. The
Respondent contends that Mr. Jagannathan called the
Petitioner on the phone, but the Petitioner failed to appear;
k) On September 27, 2021, the Petitioner wrote to the
Respondent and copied Mr. Jagannathan, stating that the
Petitioner had already denied any dispute between the parties
and expressly stated that the Petitioner “is not accepting Mr.
A. Jagannathan as a(n) Arbitrator “. The receipt of this letter,
which also refers to the letter dated September 7,2021, is not
disputed;
l) On September 28, 2021, a second hearing was held by
Mr. Jagannathan without the Petitioner’s participation.
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According to the Respondent, the Petitioner ” ignored the tele-
communication and WhatsApp messages” of Mr.
Jagannathan. In the List of Dates presented by Mr. Kapadia,
this is an assertion about each of the multiple subsequent
hearings in the matter – the calls and WhatsApp messages of
Mr. Jagannathan being ignored by the Petitioner;
m) On October 20, 2021, the Petitioner filed a Civil Suit
in Jaipur seeking a declaratory relief that the MOU was null
and void ab initio. Since the MOU had an arbitration clause,
this Suit came to be disposed of, directing the Petitioner to go
to arbitration;
n) On December 20, 2021, the Respondent filed a
Statement of Claim before Mr. Jagannathan;
o) On January 7, 2022, the Petitioner registered a first
information report with the Jaipur Police against the
Respondent;
p) On January 21, 2022 and January 24, 2022, Mr.
Jagannathan wrote to the Petitioner calling for a Statement of
Defence;
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q) On January 29, 2022, the Petitioner reiterated the
objections to Mr. Jagannathan, again stating that the
Petitioner never signed any MOU with the Respondent and
asserting that the MOU in question is a forged document. The
Petitioner took up the plea that the content of the MOU makes
it apparent that it is a contract for bribe money which is
against public policy and would not be executable in the eyes
of law;
r) On February 9, 2022, the Respondent refuted all the
allegations of the Petitioner, while on March 9, 2022 the
Petitioner reiterated all his contentions and objections;
s) On March 16, 2022, Mr. Jagannathan passed an order
narrating all the contentions of the parties made until then.
He ruled that he intended to continue with the arbitration
proceedings and complete it. He returned a finding that the
Petitioner has not filed a challenge to appointment of the
arbitrator within the time stipulated under Section 13(2) of
the Act and any objection from the Petitioner was “time
barred” (not being within the time-frame of 15 days after
becoming aware of the constitution of the arbitral tribunal);
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t) On October 14, 2022, Mr. Jagannathan made the
award in the proceedings conducted by him (” Impugned
Award”). He awarded the Respondent an amount of Rs.
11,20,90,862/- (Rs~11.21 Crores) along with interest at the
rate of 12%.
Contentions Analysed:
3. Mr. Akash Menon, Learned Counsel for the Petitioner
submits that the fact that the appointment was unilateral is adequate to
set aside the Impugned Award.
4. Mr. Shyam Kapadia, Learned Counsel for the Respondent
submits that unilateral appointment of the arbitrator is not fatal to the
Impugned Award. He argues that the Petitioner neither filed an
application before the arbitrator so appointed, challenging his
jurisdiction on the ground of unilateral appointment (under Section 16
of the Act), nor filed an application to the jurisdictional court asking for
an independent arbitrator to be appointed to replace the unilaterally-
appointed arbitrator (under Section 11 of the Act). Therefore, he would
argue, the Petitioner has lost his right to challenge the Impugned
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Award.
5. If Mr. Kapadia’s contention were to be accepted, it would
mean that an arbitrator may be appointed by a party in direct conflict
with the arbitration agreement, and such illegally-appointed arbitrator
could power on with the arbitration proceedings, and despite such
genesis, the award could still be immune from challenge under Section
34 of the Act.
6. Mr. Kapadia also finds fault with the Petitioner for adopting
varying stances to oppose the arbitration – for example, the Petitioner
first asserted that there is no dispute for arbitration to be initiated; later,
he asserted that no arbitration agreement was signed; then, he alleged
that the purported agreement is forged and fabricated; and now, is
arguing that the appointment is illegal because it is a unilateral
appointment.
7. While these are attractive submissions on equity, they do not
turn the needle in favour of the validity of the Impugned Award – it is
trite law that equity can supplement the law when there is a gap in it,
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but it cannot supplant the law1.
8. The Petitioner too has invoked equity by arguing that the
purported (he denies having executed it) agreement containing the
arbitration clause is for payment of “commission / bribe” and therefore
against public policy. This submission too is irrelevant for purposes of
adjudicating this Petition, for which I am guided solely by the limited
scope for interference under Section 34 of the Act.
9. For purposes of the analysis here, even assuming that the
contract had indeed been signed, when it is common ground that the
arbitrator was unilaterally appointed by one party to the contract, and
that too when even the contract does not even envisage unilateral
appointment of an arbitrator, this is no longer a case of just considering
whether a unilateral appointment of arbitrator is illegal, but in fact, a
case of the appointment being in conflict with the very arbitration
agreement that is invoked. Therefore, the appointment is void ab initio
because of the patent illegality in the very appointment of the arbitrator.
1
2011 (4) SCC 266
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Party Autonomy and Independence:
10. The doctrine of “party autonomy” in determining, among
others, who the arbitrator should be, and the “independence” of the
arbitrator so appointed, are twin facets that lie at the heart of privatised
dispute resolution in the form of arbitration. The Act accords to an
arbitral award, the statutory treatment given to a decree of a court, in
enforcement of the award (under Section 36 of the Act). The Act also
limits the grounds of challenge to an arbitral award (under Section 34 of
the Act). Therefore, when parties agree to repose confidence in a private
quasi-judicial arbitral tribunal, giving up precious rights to a first appeal
and a second appeal, it is expected that the contracting party ought to be
able to bring to bear its full sovereign autonomous power in deciding
who should man that tribunal.
11. Where the parties have executed an arbitration agreement
that permits one of the parties to unilaterally choose the arbitrator, it
would give rise to a potential conflict between “party autonomy” and
“independence”. The thinking that “party autonomy” is supreme
endorses the theme that a contracting party should be able to agree, for
consideration, that it would abide by the choice of arbitrator made by
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the other contracting party. The thinking that “independence” is
supreme endorses the theme that if one party can dictate who the
arbitrator should be, it would undermine the very core element of
impartiality, fairness and balance that is essential for an arbitrator who
is given the powers to adjudicate and make an award that is on par with
a court judgement, and that too, protected from two rounds of appeal
that even a court’s judgement would be subjected to.
12. In Central Organisation for Railway Electrification vs. ECI
SPIC SMO MCML (JV) A Joint Venture Company 2 (Unilateral Reference
Case), dealing with this very conflict, a five-judge bench of the Supreme
Court answered a reference to declare that “party autonomy” would give
way to “independence”. The majority judgement by three judges,
declared that even if the parties agree by contract that one of the parties
may unilaterally appoint an arbitrator, such provision in the contract
would be in contravention of the Act and would not be enforceable. Two
separate judgements, dissenting on some facets of the majority view (to
state that every clause providing for unilateral appointment need not be
inexorably illegal), also firmly iterated that independence and
impartiality of the arbitral tribunal is sacrosanct.
2
2024 SCC OnLine SC 3219
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13. It should be remembered that the Unilateral Reference Case
was dealing with arbitration agreements that had clauses providing for
unilateral appointment by one of the parties to the arbitration
agreement. Although the Act allows parties to agree to the procedure
for appointment of arbitrators, the principle of independence,
impartiality and fairness of the procedure for appointing the arbitrator
was held to be immutable, thereby rendering such clauses illegal despite
being founded on party autonomy.
Arbitration Agreement Violated:
14. In the matter at hand, the Respondent admits that the
appointment of Mr. Jagannathan was unilateral. It was evident that the
appointment was not the product of mutual consent or a Court’s
direction.
15. What stands out is that Clause 7 of the MOU, which contains
the arbitration agreement (even if its execution is in dispute) does not
even purport to enable the Respondent to unilaterally appoint the Sole
Arbitrator. For felicity, Clause 7 of the MOU is extracted below:-
7. The parties agree any dispute or difference arising under this
MOU that the Arbitration shall be conducted in accordance with
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F-J-2-OSCARBP-210-2024.docArbitration shall be at Mumbai. The fee and other expenses to be
paid to the Arbitrator shall be borne by the invoking party. All
other expenses such as venue, attorney fee, making and presenting
their case, etc. shall be borne by the respective parties on their
own.
16. This provision is significant for what it does not state – the
power of a party to appoint an arbitrator unilaterally. The arbitration
agreement provides that the arbitration shall be conducted in
accordance with the Act. It is apparent that the Petitioner had not
agreed to the procedure unilaterally adopted by the Respondent, or to
the identity of the arbitrator to be appointed.
17. In the conventional understanding of a “unilateral
appointment”, the premise would be that the arbitration agreement,
which autonomous parties have chosen to execute, provides for
unilateral appointment by one party . Yet, the law declared is that such
an agreed procedure would be illegal. The case at hand indeed involves
unilateral appointment, but such appointment is not even in
consonance with the arbitration agreement, which simply means that
the unilateral appointment in this case is in direct conflict with the very
arbitration agreement under which the arbitration has been invoked.
18. The Respondent had proposed the name of Mr. Jagannathan,
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when invoking the arbitration. The Respondent admits that the
Petitioner did not consent to the name. Even if one assumes that the
Respondent is right in its claim that the letter dated September 7, 2021
from the Petitioner was not received, the letter dated September 27,
2021 had admittedly been received. What is writ large on the face of the
record is that there was no consensus that the parties would have Mr.
Jagannathan as the agreed arbitrator in exercise of their autonomy. In
that event, it was for the party invoking the arbitration (the Respondent)
to approach the jurisdictional Court under Section 11 of the Act. The
Respondent simply did not take this logical and imperative next step
provided for in the scheme of the Act.
19. Instead, the Respondent finds fault with the Petitioner for
not having gone to the jurisdictional Court under Section 11 of the Act,
requesting the Court to appoint an arbitrator. This is an inexplicable
expectation – to argue that the party that denies the existence of an
agreement to approach the Court to appoint an arbitrator on the
premise that the party that asserts the existence of the agreement is
violating that agreement. The only logical and evident next step for the
Respondent was to approach the Court under Section 11 to appoint an
arbitrator. An arbitrator so appointed would then have had to deal with
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his jurisdiction under Section 16, dealing with the question of the
existence and validity of the arbitration agreement.
Scope of Section 16:
20. Mr. Jagannathan’s ruling dated March 16, 2022 in favour of
his own jurisdiction, even while claiming that a challenge under Section
13 of the Act had not been mounted within the time stipulated, and
thereby powering on with the arbitral proceedings, making phone calls
and sending WhatsApp messages to the Petitioner asking him to appear,
is also inexplicable. The provisions of Section 16 are instructive and
would be worthy of being extracted here for convenience:-
Section 16. Competence of arbitral tribunal to rule on its
jurisdiction.–
(1) 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, 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
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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
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 arbitral
proceedings.
(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-
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
with section 34.
[Emphasis Supplied]
21. It can be seen that Section 16(1) of the Act confers an
expansive and wide power on the arbitral tribunal – to rule on its own
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jurisdiction, including ruling on objections with respect to the existence
or validity of the arbitral agreement. Even if one were to assume that
the letter dated September 7, 2021 addressed to Mr. Jagannathan was
not received by him (the Respondent disclaims receipt), admittedly, the
letter dated September 27, 2021 was indeed received by them. The
contents of that letter, stating that there is an objection to Mr.
Jagannathan as the arbitrator, ought to have alerted the arbitrator that
there is an objection that raises issues of both party autonomy as well as
absence of agreed procedure for appointment. That objection ought to
have been noticed and dealt with.
22. Instead, the ruling by Mr. Jagannathan in favour of his own
jurisdiction by his order dated March 16, 2022, does not address the
issue of unilateral appointment in violation of the arbitration
agreement. Instead, it proceeds to state that a challenge to the
procedure could only be made under Section 13, and no objection
having been received within the time stipulated in Section 13(2), the
arbitral tribunal would proceed with the arbitration.
23. Mr. Kapadia’s submission that Mr. Jagannathan did not deal
with the issue of unilateral appointment vitiating the proceedings, since
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the ground of unilateral appointment had not been explicitly raised by
the Petitioner before Mr. Jagannathan, is not convincing. It is apparent
from a plain reading of Clause 7 of the MOU that there was no power to
make a unilateral appointment. That is the first provision that an
arbitral tribunal is expected to read even in a non-contested arbitral
appointment. The arbitral tribunal was in receipt of at least the letter
dated September 27, 2021, and therefore had notice that the arbitral
tribunal’s appointment is under cloud on the ground that the
arbitrator’s appointment was not a product of consent of the parties.
24. The next question the arbitral tribunal ought to have
considered is whether, in the absence of consent, it was the Court with
jurisdiction under Section 11 that had appointed the arbitrator.
Evidently, Mr. Jagannathan was not appointed by the Court, and this
ought to have been dealt with by him at the threshold. The scope of
power under Section 16(1) is not limited by the need for a party to raise
an objection. The provision empowers the tribunal to rule on its
jurisdiction, including objections raised by a party. In my opinion, in
the fact pattern at hand, the arbitral tribunal, which was discharging
serious powers under the Act, ought to have been mindful of the fact
that the very foundation of the edifice that it went on to build, was
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undermined.
Scope of Section 13:
25. The position taken by Mr. Jagannathan for purposes of the
limitation period under Section 13(2) of the Act calls for some analysis.
Section 13 contains the procedural law for a challenge on the grounds
set out in Section 12(3) of the Act. Those are grounds based on
circumstances that either give rise to justifiable doubts as to the
independence and impartiality of the arbitrator, or demonstrate that the
arbitrator appointed does not possess the qualifications that the parties
had agreed he ought to have. It is evident that Mr. Jagannathan
understood the objections of the Petitioner as being linked to doubts as
to his independence. That is why he had referred to Section 13(2) of the
Act when ruling in favour of his own jurisdiction. He was aware that he
was unilaterally appointed by the Respondent. Even in the proceedings
before me, Mr. Kapadia fairly stated that there is no contest as to
whether Mr. Jagannathan was unilaterally appointed. That being so,
the provisions of Clause 7 of the MOU could only inexorably show that
the very foundation of consent to the identity of the arbitrator did not
exist. It was equally evident that the only remedy for this situation was
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the invocation of Section 11 of the Act. That invocation of Section 11,
ought to have been by the party invoking arbitration.
26. In any case, under Section 16(6) read with Section 16(5) of
the Act, such a decision to proceed with the arbitration and to make an
award, would render the award amenable to a challenge under Section
34 of the Act. Therefore, the challenge can only be mounted after the
award is made, and to the award. This Petition is precisely such a
challenge.
27. Mr. Menon fairly states that there is no material on record to
bring to bear a factual finding of a relationship between Mr.
Jagannathan and the Respondent that would fall within the categories
of relationships stipulated in the Seventh Schedule of the Act. However,
Mr. Menon would firmly assert that the said issue is moot, since,
evidently and admittedly, the appointment of the arbitrator was
unilateral. In my opinion, the mere fact that the appointment was
unilateral is not the only vitiating facet here. That such a unilateral
appointment was forced on a counterparty, not by the arbitration
agreement, but by the conduct of the other counterparty, without
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support for it the arbitration agreement, is fatal to the arbitral
proceedings that has culminated in the Impugned Award.
No Estoppel against Law:
28. Mr. Kapadia would submit that the correspondence from the
Petitioner would point to the fact that the Petitioner provided some
factual inputs on facets of merits to Mr. Jagannathan. The insinuation
is that the Petitioner is seeking to enjoy the luxury of challenging the
Impugned Award on the premise of unilateral appointment, after having
failed to convince the arbitrator. I am not persuaded by this line of
reasoning, which appears to be an argument of estoppel. It is trite law
that there can be no estoppel against law. Assuming Mr. Kapadia’s
contention that the Petitioner made some submissions on merits, is
factually accurate, it would not follow that a forum without jurisdiction
could be conferred jurisdiction. This is not a case where the Petitioner
waived or withdrew its earlier objections, and changed its mind to
participate in the arbitration. On the contrary, from a review of the
material on record, it is apparent that at every stage, the Petitioner
reiterated that it was opposed to Mr. Jagannathan as the arbitrator.
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29. The scheme of Section 16(2) of the Act is also noteworthy –
an objection to jurisdiction can be made before filing a Statement of
Defence. In fact, Section 16(2) goes a step further to provide that even a
party that has participated in the appointment of an arbitrator can raise
an objection that the arbitral tribunal does not have jurisdiction. This
only goes to show that jurisdiction being the very foundation of the
proceedings, and consent in the appointment of an arbitrator being the
primary means of conferring jurisdiction, the ability to raise a
jurisdictional objection is wide. A party, despite having appointed an
arbitrator, could still tell the arbitrator that the scope of his jurisdiction
does not extend to the issues on which the arbitrator seeks to exercise
the jurisdiction conferred. In any case, the Petitioner filed no
Statement of Defence. Mr. Jagannathan understood the objection to be
one of jurisdiction, which is why, making his comments on the objection
being time-barred under Section 13(2), he still ruled in favour of his
jurisdiction, which corresponds to the scope of Section 16. That having
been done, and the arbitration having been persisted with, culminating
in an award, this Petition under Section 34 of the Act, is the avenue
stipulated in the Act for the decision to be challenged.
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Absurdity Underlined:
30. It is fallacious to suggest that once an arbitrator has been
appointed unilaterally (and that too without the agreement providing
for it), the party not consenting to the appointment has to either file a
challenge under Section 13 of the Act or approach the jurisdictional
Court under Section 11 of the Act to replace the arbitrator, failing which,
such party is estopped from mounting a challenge under Section 34 of
the Act. The absurdity in this proposition would become clear from a
hypothetical example. Take a case where there are two parties to an
agreement and each has concurrently and unilaterally appointed an
arbitrator. Each party could then assert that it is the arbitrator
unilaterally appointed by it that should be approached by the other
party under Section 13 of the Act. Each party could argue that it need
not invoke Section 11 of the Act, and it is the other party that ought to
approach the Court under Section 11. In that case, two unilaterally
appointed arbitrators could make two distinct awards, and neither party
can challenge the award passed by the arbitrator unilaterally appointed
by the other party, being estopped from doing so, as claimed by Mr.
Kapadia. Such a position would lead to chaos in the field of commerce.
This is precisely why, there can be no estoppel against law, and also why
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arguments founded on seemingly equitable principles may appear
attractive, but can never supplant the law.
Conclusion – Impugned Award Set Aside:
31. Consequently, the appointment of Mr. Jagannathan i.e. the
composition of the arbitral tribunal, in my opinion, was void ab initio.
All consequences flowing from such appointment have to necessarily
suffer the same fate of incurable illegality.
32. Under Section 34(2)(a)(v) of the Act, an arbitral award may
be set aside if the composition of the arbitral tribunal or the arbitral
procedure was not in accordance with the agreement of the parties,
unless the agreement itself was in conflict with a provision of Part I of
the Act from which the parties cannot derogate. If the composition of
the arbitral tribunal or the arbitral procedure was not in accordance
with Part I of the Act, then too the arbitral award would be amenable to
being set aside.
33. Under Section 34(2)(b)(ii) of the Act, if the Court finds that
the arbitral award is in “conflict with the public policy of India”, the
arbitral award may be set aside. Two of the three conditions stipulated
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for regarding an award as being in “conflict with the the public policy of
India” are relevant in this case – (i) that the award is in contravention
of the fundamental policy of Indian law; and (ii) that the award is in
conflict with the most basic notions of morality or justice. If either of
these two factors are met, the award would be regarded as being in
conflict with the public policy of India, and thereby the award would be
amenable to being set aside under Section 34(2)(b)(ii) of the Act.
34. Under Section 34(2-A) of the Act, an arbitral award may also
be set aside if the Court finds that the award is vitiated by patent
illegality appearing on the face of the award. The appointment was not
in accordance with the agreement under which arbitration was invoked.
The composition was in conflict with party autonomy, which is one of
the principles that represent the bedrock of the Act. The manner of
persisting with proceedings in the teeth of there being no consent to the
appointment is in conflict with the most basic notions of justice. Despite
the Act actually having stipulated a mechanism in Section 11 to deal with
the absence of consent to an arbitrator, it was not invoked. All of these
point to patent illegality on the face of the award. To not set aside such
an award passed by such a tribunal would have the effect of rendering
Section 11 otiose and redundant, and being effaced from the statute.
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Parties to agreements could then take the law into their own hands
when there is an absence of consent, and not follow the due process
under Section 11 of the Act, to have an independently chosen arbitrator
appointed.
35. Therefore, these are not pointers to a mere error in the
application of law without vitiating the very core and scheme of the Act.
Instead, all factors clearly point to patent and manifest illegality on the
face of the arbitral proceedings and thereby, the Impugned Award. As a
result, the position that emerges in the matter leaves no manner of
doubt that the conduct of the arbitration proceedings, and thereby its
final product i.e. the Impugned Award, deserve to be set aside pursuant
to the provisions contained in Section 32(2)(a)(v), Section 32(2)(b)(ii)
and indeed Section 32(2-A) of the Act. It is hereby set aside.
36. These proceedings are under a Commercial Arbitration
Petition, which requires me to apply my mind to whether and how much
costs ought are to be imposed. Taking into account the parameters
applicable to costs, and the conduct of both parties, I am persuaded not
to impose costs.
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37. This petition is finally disposed of in the aforesaid terms. As
a result, any Interim Application filed in connection with this Petition,
would also stand finally disposed of.
38. All actions required to be taken pursuant to this order shall
be taken upon receipt of a downloaded copy as available on this Court’s
website.
[ SOMASEKHAR SUNDARESAN, J.]
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