2019 (7) TMI 1234 - SC - Indian Laws

Existence or otherwise of the Arbitration clause governing the parties and more particularly with regard to the conduct of the Arbitrator - Compensation for damage - damage on account of failure of Shingada in an appropriate manner - HELD THAT - In the ultimate analysis since we are not adverting to the merits of the claim and in that regard since, we have not adverted to the finding recorded by the learned Arbitrator on the merits of claim we would not venture to examine with regard to the ultimate conclusion on the claim as to whether it is justified or not. However, in the above background, what is to be seen is that there has been a reasonable basis for the appellants to make a claim that in the present circumstance the learned Arbitrator would not be fair to them even if not biased. It could no doubt be only a perception of the appellants herein. The learned Judge of the High Court of Judicature at Bombay was not justified in allowing the appeal filed under Section 37(1)(b) of the Act, 1996. Appeal allowed.

Summary

Issues:
Existence of Arbitration clause and conduct of the Arbitrator

Analysis:
The case involves a dispute between the parties regarding the existence of an arbitration clause and the conduct of the Arbitrator. The respondent No.1 invoked Sec. 37(1)(b) of the Arbitration and Conciliation Act, 1996, challenging an order passed by the District Judge, Nagpur, in proceedings under Sec. 34 of the Act. The dispute arose when the appellants alleged that the respondent failed to store goods properly, leading to damage. The respondent claimed the parties were bound by an arbitration clause and submitted the dispute to an Arbitrator. The appellants objected to the appointment of the Arbitrator, leading to a series of communications and legal actions.

The High Court set aside the order of the District Judge and restored the award passed by the Arbitrator. The appellants appealed to the Supreme Court, arguing on the validity of the arbitration clause and the Arbitrator's conduct. The Court examined whether there was a meeting of minds regarding arbitration, concluding that the appellants, by seeking the appointment of an independent Arbitrator, were estopped from challenging the existing clause. The Court also scrutinized the Arbitrator's conduct, noting his previous involvement as counsel for a party in another case related to the dispute.

The Court found that the Arbitrator's failure to disclose his conflict of interest and proceed with the arbitration despite objections raised was unjustified. Citing legal provisions and precedents, the Court emphasized the importance of impartiality in arbitration proceedings. The Court held that the Arbitrator's actions created a reasonable basis for the appellants to doubt his fairness, even if not bias. Consequently, the Court set aside the High Court's judgment, reinstated the District Judge's order, and allowed the parties to seek arbitration afresh, leaving all contentions on merits open.

In conclusion, the Supreme Court ruled in favor of the appellants, emphasizing the need for fairness and impartiality in arbitration proceedings. The Court's decision focused on upholding the integrity of the arbitration process and ensuring parties' trust in the system.