2021 (10) TMI 1457 - HC - Indian Laws

Challenge to ex-parte ad-interim order passed by the learned Sole Arbitrator on a Section 17 application - whether in the facts of the case was it appropriate for the learned Arbitrator to pass an ex-parte ad-interim order on the Respondent s Section 17 application? - HELD THAT - The Act postulates that in conduct of the arbitral proceedings the fundamental requirement would be that the parties are not only treated with equality but each party shall be given a full opportunity to present his case. This would be more imperative when the parties are already before the arbitral tribunal. Sub-section (2) of Section 19 recognizes the role of the parties when it provides that the parties are free to agree on the procedure to be followed by the tribunal in conducting its proceedings which places an arbitral tribunal in a different position from that of a Court when it confers such choice on the parties. The crucial provision however is of Section 24. Sub-Section (2) of Section 24 inter alia mandates that the parties shall be given sufficient advance notice of any hearing . The provisions of Section 18 19 and 24 would be required to be read in conjunction as there is a common thread passing through these provisions in relation to the conduct of the arbitral proceedings which is to the effect that the parties need to be fairly treated at all stages of the arbitral proceedings and an adequate/sufficient opportunity is made available to them to present their case on any proceedings before the arbitral tribunal which would also include before any order ad-interim interim or final is to be passed by the arbitral tribunal. It would be unknown to law and quite peculiar for an arbitral tribunal to pass an ex-parte ad-interim order on the mere filing of a Section 17 application without hearing even the party making the application much less the contesting respondent who would certainly be affected and/or prejudiced by an ex-parte order. It may be that the arbitral tribunal is of a firm opinion in the facts of a given case that some urgent orders are required to be passed to protect the arbitral interest of the parties however fairness of the procedure and more particularly as reflected by the provisions as discussed above would not permit an arbitral tribunal to pass an ex parte order on a section 17 application and moreso when the parties are sufficiently before the arbitral tribunal. Appellant s submission relying on the provisions of Rule 3 of Order 39 of the CPC that an arbitral tribunal before granting an injunction ought to have issued a notice in my opinion stand recognized by the provisions of sub-section (2) of Section 24 of the Act. However in view of the observations made above the proviso which deals with the power conferred on the Court to pass ex parte orders cannot be applied to arbitral proceedings in view of the clear provisions of sub-section (2) of Section 24 read with Section 18 of the Act. Thus even if the arbitral tribunal is recognized to have the same power for making orders as that of the Court for the purposes of and in relation to any proceedings before it due meaning to the provisions of sub-section (2) of Section 24 read with Section 18 would be required to be given when it prescribes that a party shall be given sufficient advance notice of any hearing and further qualified with an obligation of the tribunal to treat all the parties equally and that each party shall be given a full opportunity to present its case which is required to be recognized to be applicable at all stages of the proceedings before the arbitral tribunal. It appears that even the respondent was not heard before passing the ex parte ad-interim orders and only on perusal of the averments in the application such an order has been passed by the arbitral tribunal. This could have been certainly avoided by placing the respondent s application for hearing even urgently with notice to both the parties. Conclusion - The ex-parte order dated 8 October 2021 set aside allowing the respondent to move the arbitral tribunal on its second Section 17 application with notice to the appellant. The impugned order dated 8 October 2021 is set aside - appeal disposed off.

ISSUES PRESENTED and CONSIDERED

The primary issue considered was whether it was appropriate for the learned Arbitrator to pass an ex-parte ad-interim order on the Respondent's Section 17 application under the Arbitration and Conciliation Act, 1996, without hearing the parties involved.

ISSUE-WISE DETAILED ANALYSIS

Relevant legal framework and precedents

The legal framework involved the Arbitration and Conciliation Act, 1996, specifically Sections 17, 18, 19, and 24. The provisions of the Act emphasize the principles of equality of treatment and the opportunity for parties to present their case. The UNCITRAL Model Law on International Commercial Arbitration was also discussed, particularly the 2006 amendments concerning interim measures and preliminary orders.

Court's interpretation and reasoning

The Court interpreted the provisions of the Act to mean that an arbitral tribunal should not pass ex-parte orders without giving both parties an opportunity to be heard. The Court emphasized that the Act requires parties to be treated equally and given a full opportunity to present their case, which includes being given sufficient advance notice of any hearing. The Court noted that the Indian legislature had not incorporated the 2006 UNCITRAL amendments allowing ex-parte preliminary orders into the Act, indicating a deliberate choice to maintain a different procedural standard.

Key evidence and findings

The Court examined the procedural history, including the email correspondence between the parties and the arbitral tribunal's actions. It found that the arbitral tribunal had acted suo moto, issuing an ex-parte order without hearing the parties, which was contrary to the procedural requirements of the Act.

Application of law to facts

The Court applied the provisions of the Act to the facts, concluding that the arbitral tribunal's issuance of an ex-parte order without notice or hearing was inappropriate. The Court highlighted that the arbitral tribunal should have provided an opportunity for both parties to present their arguments before making any interim orders.

Treatment of competing arguments

The appellant argued that the arbitral tribunal should not have issued an ex-parte order without notice, citing the principles of fairness and equality under the Act. The respondent contended that the order was necessary to prevent frustration of the arbitral process. The Court sided with the appellant, emphasizing the need for procedural fairness and adherence to the statutory requirements.

Conclusions

The Court concluded that the arbitral tribunal's ex-parte order was not justified under the Act, as it violated the principles of fairness and equality by not providing the parties an opportunity to be heard.

SIGNIFICANT HOLDINGS

Preserve verbatim quotes of crucial legal reasoning

"The provisions of Section 18, 19 and 24 would be required to be read in conjunction, as there is a common thread passing through these provisions in relation to the conduct of the arbitral proceedings, which is to the effect that the parties need to be fairly treated at all stages of the arbitral proceedings, and an adequate/sufficient opportunity is made available to them to present their case."

Core principles established

The Court established that arbitral tribunals must adhere to the principles of procedural fairness and equality, ensuring that parties have an opportunity to be heard before any interim orders are issued.

Final determinations on each issue

The Court set aside the ex-parte order dated 8 October 2021, allowing the respondent to move the arbitral tribunal on its second Section 17 application with notice to the appellant. The arbitral tribunal was directed to hear the parties and pass appropriate orders after considering their submissions. All contentions of the parties were expressly kept open for future proceedings.

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