2014 (6) TMI 99 - HC - Indian Laws

Validity of Exparte arbitration award - consent for appointment of arbitral tribunal - Unilateral appointment of Arbitrator cum Advocate by one party - Dual capacity of Arbitrator and Advocate of one party - Failure to perform the terms and conditions of MOU - Petitioner remained absent from proceedings therefore, ex parte order passed - Held that - The requirement of consent, in no way, permits any one party to appoint Arbitrator unilaterally. It is contrary to the terms and the law. Apart from this clause, it is necessary for both the parties to appoint and/or nominate and/or select sole Arbitrator by consent. The appointment of the Arbitral Tribunal without consent itself was contrary to the agreed terms of the contract. The Arbitrator who was Advocate of the Respondents, acted also as the Advocate and also as the Arbitrator. It is just impermissible. Such dual capacity of Advocate and/or even of the Arbitrator is against the basic provisions of the Arbitration Act and/or the arbitration scheme itself. The Advocate by consent can act as Arbitrator, but cannot act in such dual capacity for only one party. Petitioner would have participated in the arbitration proceedings and resisted the claim in all respects. The Arbitrator would have passed the appropriate order. But in this case, the Petitioners having made their position clear in writing and had resisted every steps taken by the Respondents including the steps taken by the Arbitrator, who was no one else, but the Advocate of the Respondents and, therefore, the nonparticipation, in no way, can be treated as deliberate action to avoid the settlement of disputes through the arbitration proceedings. I am inclined to observe that both the proceedings so initiated and concluded is illegal, contrary and perverse. The Award so passed is unsustainable and liable to be quashed and set aside on all counts. - Decided in favour of appellant.

Issues Involved:
1. Unilateral appointment of Arbitrator
2. Dual capacity of Arbitrator and Advocate
3. Requirement of consent for appointment of Arbitral Tribunal
4. Legality of the Arbitral Award
5. Non-participation in arbitration proceedings
6. Costs associated with the arbitration proceedings

Detailed Analysis:

1. Unilateral appointment of Arbitrator:
The Petitioners challenged the ex parte award under Section 34 of the Arbitration and Conciliation Act, 1996, arguing that the Respondents unilaterally appointed Advocate Shri Shailendra S. Gandhi as the Arbitrator without their consent. The Petitioners contended that such a unilateral appointment was impermissible and contrary to the terms of the contract and the law.

2. Dual capacity of Arbitrator and Advocate:
The Arbitrator, who was also the Advocate for the Respondents, replied to the Petitioners' objections in a manner resembling that of an Advocate defending his client. This dual capacity was deemed impermissible, as the Arbitrator acted both as an Advocate and as an Arbitrator, which is against the basic provisions of the Arbitration Act and the principles of natural justice.

3. Requirement of consent for appointment of Arbitral Tribunal:
The arbitration clause required the appointment of a sole Arbitrator by mutual consent. The Petitioners' consent was never obtained, making the unilateral appointment of the Arbitrator invalid. The Arbitrator's role is limited to fixing meetings and not dealing with the merit of the matter on behalf of one party.

4. Legality of the Arbitral Award:
The Arbitrator directed the Petitioners to provide a flat or pay compensation/liquidated damages of Rs. 77,50,000 with interest. The award was based solely on the Respondents' documents and statements, without any supporting evidence or material. The Arbitrator failed to consider the Petitioners' objections and the pending appeal before the National Consumer Commission. The award was deemed contrary to the provisions of the Arbitration Act, Evidence Act, Code of Civil Procedure, and principles of natural justice.

5. Non-participation in arbitration proceedings:
The Petitioners did not participate in the arbitration proceedings, arguing that the initiation and appointment of the Arbitrator were contrary to the settled principles of arbitration law. The court found that the Petitioners' non-participation was not deliberate but due to the illegal inception and invocation of the arbitration proceedings. The award was quashed as it was unsustainable and perverse.

6. Costs associated with the arbitration proceedings:
The Petitioners sought costs for the arbitration proceedings, including court fees of Rs. 75,000. However, the court did not award costs due to the delay in pursuing the arbitration petition. The execution proceedings initiated by the Respondents were also quashed along with the award.

Conclusion:
The court quashed and set aside the Arbitral Award dated 14.08.2010 and the execution proceedings arising from it. The Petition was allowed without any order as to costs. The judgment emphasized the importance of mutual consent in the appointment of Arbitrators and the impermissibility of an Arbitrator acting as an Advocate for one party.

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