2015 (12) TMI 778 - SC - Indian Laws

Misconduct on the part of the arbitrator - Challenge to the arbitration award since the award was passed in violation of principle of natural justice inasmuch - Held that - At the very outset, we are obliged to state that the respondent has not challenged the order passed by the High Court and, therefore, as far as examination of the umpire is concerned, it stands foreclosed. - The High Court further appreciated the reasoning expressed by the rule making Court and ruled that even if umpire would be examined, no fruitful purpose will be served and, accordingly, gave the stamp of approval to the same. However, the High Court granted liberty to the writ petitioner to produce other available evidence to substantiate its claim and specifically permitted to examine its employee as a witness in the proceeding. In the instant case, the High Court has granted liberty to the respondent herein to examine its General Manager to substantiate its claim and further opining that the said evidence should be considered within the parameters of Sections 30 and 33 of the 1940 Act. The learned senior counsels for the parties have pressed their argument relating to legal misconduct. Both the learned senior counsels for the parties have construed the order that the said liberty has been granted to establish the misconduct and precisely that is the subject matter of challenge before us. Therefore, we have clearly opined that to substantiate a stance of legal misconduct on the part of the arbitrator, examination of any witness in court is impermissible. It is because it must be palpable from the proceedings and the learned single Judge has already directed that the proceedings before the arbitrator to be requisitioned by the civil court. Least to say, it will be open for the respondent to establish the ground of legal misconduct from the arbitral proceedings. We may hasten to add that we have not said anything as regards legal misconduct pertaining to the present case, although we have referred to certain authorities as regards the legal misconduct. In view of the aforesaid premises, the appeal is allowed in part as far as it grants permission/liberty to the respondent to examine any witness in court. The learned Civil Judge would requisition the records from the learned arbitrator, if not already done, and the respondent would be at liberty to advance its arguments for pressing the factum of misconduct from the said records.

Summary

Issues Involved:
1. Legal tenability of the High Court's order allowing the respondent to substantiate objections under Sections 30 and 33 of the Arbitration Act, 1940 by adducing evidence.
2. Examination of witnesses to prove legal misconduct by the arbitrator.
3. Scope and interpretation of Sections 30 and 33 of the Arbitration Act, 1940.

Issue-wise Detailed Analysis:

1. Legal Tenability of the High Court's Order:
The appellant challenged the High Court's order that permitted the respondent to substantiate objections under Sections 30 and 33 of the Arbitration Act, 1940 by adducing evidence. The High Court modified the order of the civil court, which had rejected the respondent's application to examine witnesses, including the arbitrator and the General Manager. The High Court allowed the examination of the General Manager and the production of other evidence, while noting that the evidence would be appreciated within the scope of Sections 30 and 33 of the 1940 Act.

2. Examination of Witnesses to Prove Legal Misconduct:
The appellant argued that it was unwarranted to examine witnesses to prove legal misconduct, as such misconduct must be demonstrated from the records of the arbitral proceedings and evidence already adduced before the arbitrator. The respondent contended that oral evidence was necessary to establish the legal misconduct of the arbitrator, particularly regarding the alleged violation of natural justice principles. The court considered precedents, including Arosan Enterprises Ltd. v. Union of India and Another, Inder Sain Mittal v. Housing Board, Haryana and Others, and others, to determine the admissibility and necessity of witness examination in proving legal misconduct.

3. Scope and Interpretation of Sections 30 and 33 of the Arbitration Act, 1940:
Sections 30 and 33 of the Arbitration Act, 1940 were pivotal in this case. Section 30 outlines the grounds for setting aside an award, including misconduct by the arbitrator. Section 33 allows a party to challenge the validity of an arbitration agreement or award through an application to the court, which may decide the question on affidavits or other evidence if deemed just and expedient. The court examined the ambit of "legal misconduct" and concluded that it should be manifest from the arbitral proceedings and records, and not through additional oral evidence in court.

Conclusion:
The Supreme Court allowed the appeal in part, holding that the respondent could not examine any witness in court to substantiate claims of legal misconduct. The court emphasized that legal misconduct must be evident from the arbitral proceedings and records. The civil court was directed to requisition the records from the arbitrator, and the respondent was permitted to argue the factum of misconduct based on those records. No costs were awarded.