Sunday, 11 December 2016

Whether arbitration award can be set aside on ground of violation of principles of natural justice?

 In my view, the filing of the pleadings stating facts supporting  claim, the points at issue and the relief or remedy sought is mandatory and is in compliance with the principles of natural justice. The opponent is always entitled to know the case of the rival party and the reliefs sought by him to enable him to deal with such allegations and to seek the counter relief, if any. No party can seek any relief orally before the learned arbitrator and has to plead his case in writing. In my view provision for filing of pleadings stating facts points at issue and reliefs or remedy sought is not derogable and thus there is no question of waiver under section of theArbitration Act.
77. " The learned Arbitrator in my view has committed patent illegality but not allowing the parties to file pleadings so as to indicate their case and reliefs sought. The impugned award is thus in violation of section 23 of the Arbitration Act, 1996 and deserves to be set aside on this ground alone. In my view, since the award made by the learned arbitrator is not in accordance with provisions in Part-I, such arbitral award can be set aside under section 34 (2) (a) (v) of the Arbitration Act.
78. In view of this unexplained gross delay in rendering the arbitral award of more than three years, the case of the petitioner was seriously prejudiced. Since the learned arbitrator did not fix any hearing and did not follow any procedure though repeatedly requested by the petitioner, the impugned order award deserves to be set aside on this ground also.
79. The respondent was exchanging the correspondence with the learned arbitrator behind the back of the petitioner. Though the petitioner was requesting the learned arbitrator even during the said period of three years to fix an early date of hearing and to follow the procedure, the learned arbitrator did not inform the petitioner that he was not declaring the award in view of the pending negotiations between the parties.
80. In my view, the learned arbitrator could not have visited the place of residence of the petitioner when the matter was subjudice and that also without issuing any notice to the petitioner in advance on the request of the respondent.
81. This Court in the case of Amrutlal Tirathram Gupta (supra) app306.6.423.12 has held that an arbitrator cannot consult anybody behind the back of the parties and even if the arbitrator wants to consult somebody then that person has to be called as witness. In my view, the judgment squarely applies to the facts of this case.
83. Even if it is held that under the arbitration agreement entered into between the parties the learned arbitrator could have held meetings with such intervenors, the information obtained by the learned arbitrator could not have been used as evidence unless it was brought to the notice of the parties and an opportunity ought to have been given to the petitioner to deal with the same.
85. In my view, the issue in respect of flat was subjudice before the Cooperative Court and the parties including the learned arbitrator having decided not to decide that matter, the learned arbitrator could not have adjudicated upon the issue in respect of the said flat. In my view, the award on that issue on the face of it is without jurisdiction and contrary to the agreement arrived at between the parties.
86. In my view, none of the parties had produced copy of such alleged will before the learned arbitrator. Even otherwise the said alleged will of Mrs Kankuben could not have been taken into consideration for the purpose of deciding the rights of the parties in respect of the said flat. Learned arbitrator in my view has exceeded his jurisdiction by referring to the alleged testamentary document and deciding the said issue based on the said alleged will and bequest alleged to have been made therein.
88. Learned arbitrator in paragraph 2.25 has referred to such confirmation alleged to have been obtained form those intervenors and has recorded a finding that all such intervenors had agreed that the petitioner was not pressurized to agree to the payment of Rs.12.51 lacs to the respondent. It is not the case of the respondent that the said intervenors were produced as witness by any of parties or were called in the arbitration meeting in presence of the petitioner.
Learned arbitrator did not disclose to the petitioner about the alleged information obtained by him from those intervenors. Award is in violation of principles of natural justice.
Bombay High Court
Nitin Harjivandas Rajyagor vs Rajesh Pravinchand Rajyagor on 14 June, 2016
Bench: Anoop V. Mohta
Citation:2016(6) MHLJ 634

1. This appeal is filed by the appellant against judgment dated 29th July, 2015 as the appellant's/original respondent's section 34 petition under the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the Act) is allowed whereby the award passed by the learned Arbitrator app306.6.423.12 dated 9th May, 2011 has been set aside.
2. Admittedly, there exists an Arbitration agreement between the parties. The Arbitrator as appointed by consent, being close to the family members proceeded to deal with the family dispute. The relevant agreement and clauses read as under :
"And whereas Shri Nitin Harjivandas Rajyagor and Shri Rajesh Pravinchandra have made certain claims and counter claims in respect of unresolved issues as well as in respect of certain issues resolved earlier." And whereas said parties hereto have agreed to refer the said disputes to sole arbitration of Shri Chandrakant N.Shah CA and have assumed him that help to all the intervenors, as may be required by the said sole Arbitrator will be extended to him. And whereas both the parties shall hand over the issues/matters not resolved as well as pending, requiring consideration of the Arbitrator in separate paper duly signed by each of them.
NOW THIS AGREEMENT WITNESSETH AS FOLLOWS:
1. All the disputes, between the parties hereto shall be referred to the sole arbitration of Shri Chandrakant N.Shah (hereinafter referred to as "the Arbitrator" )for his final determination and award.
2. The Arbitrator shall hear both the parties hereto and such of their relatives as the Arbitrator in his sole discretion deem fit and their witnesses interveners and look into such documents, records and evidences as they may produce and give his award within 1 ½ months.
3. The Arbitrator shall have been power to proceed ex-parte in case either party fails to appear before him after reasonable notice.
4. The cost of the arbitration shall be named by the Arbitrator app306.6.423.12 and shall be paid by the parties hereto which shall be based on the time and efforts involved. The parties shall pay an advance of Rs.10,000/- (Rs Ten thousand only) on or before execution of this agreement.
5) The award of the Arbitrator shall be binding on both the parties hereto and to their family members to whom they represent and shall not be revoked under any circumstances.
In witness whereof the parties hereto have hereunto set and subscribed their respective hands the day and the year first herein above written.
3. Both the parties based upon the agreement appeared and proceeded before the learned Arbitrator. The unresolved disputes as agreed were placed through a list of issues between the parties. This itself means that the parties could not settle the disputes which were admittedly going on since long, apart from testamentary and co-operative litigation by and between the parties.
4. Admittedly, no oral evidence was led by the parties. An application dated 17th April, 2006, under section 13 of the Arbitration, was also filed by the respondent inter alia for two reasons. One to follow the procedure under the Arbitration Act and second for objection to the delay in the proceedings. This was admittedly after more than nine dates of hearing as stated. There is no bar that the party cannot raise and/or file such app306.6.423.12 applications. The learned Arbitrator has rejected these applications by a common order dated 27th March 2008 and observed as under :
"After careful consideration of the Applications dated 17th April, 2006 and dated 14th February 2008 on the facts and circumstances of the case and because on more than one occasion the applicant reposed the full faith in the Sole Arbitrator after raising the doubts as to the independence and impartiality of the Arbitrator, I reject both the applications as frivolous and without merit."
S/d th Dated: 27 March 2008 Sole Arbitrator Mumbai
5.
Strikingly, the award was not immediately passed after rejection of those applications. The date of impugned award is 9 thMay, 2011 passed after 3 years. Merely because the learned Arbitrator was appointed by the family members that itself is not sufficient to overlook the basic principles of law. There was no specific contra agreement between the parties whereby they have decided not to follow the procedure of the Arbitration Act, or to follow any other procedure. For early and for proper management, the learned Arbitrator had called for the issues as there were disputes. For proper adjudication and/or decision the basic principles of law are required is to be followed by the Arbitrator. This is not a case where parties have agreed that even if there are unresolved issues that app306.6.423.12 would be decided by the Arbitrator by not following the procedure so prescribed under the law. As recorded, the respondents did apply and requested to follow the procedure under the Arbitration Act. The learned Arbitrator however, rejected those applications and passed the Award and decided the claim based upon the documents filed by the parties without the statement of claim, replies or a counter claim and the supporting documents and the oral evidence.
6. This also cover the basic principles of natural justice, the principles in regard to the evidence necessary to resolve the disputes and all other related aspects specifically when between the family members a physical distribution and partition is required of the immovable and of the movable properties. As the submitted issues were not resolved and therefore, at least on those issues as there was a contest, it was obligatory on the part of the learned arbitrator to deal with the same in accordance with law.
7. The Arbitrator even in family matters unless specifically agreed cannot force and/or compel the parties to accept and/or a particular app306.6.423.12 claim and reject counter claims and/or vice-versa without giving equal opportunity to both the parties as they were not agreeing to proceed on the basis of the documents so placed on record. Once the request is made to proceed as per the Arbitration Act, the learned Arbitrator ought to have proceeded accordingly.The Arbitrator had not done so.
8. The parties have read and relied on the Judgment and the record. We have also gone through the reasons given by the learned Judge while setting aside the Award in question. Those reasons which we have noted are recorded in the following paras, which are relevant even for deciding the present appeal even on merits:
REASONS AND CONCLUSIONS "74. In my view since the learned arbitrator rendered the award after three years from the date of the last application made by the petitioner i.e. on 27th March 2008, the learned arbitrator had even otherwise ample time to follow the procedure prescribed under the provisions of the Arbitration Act, 1996 and for hearing the parties. It is not the case of the respondent that the award was ready in all respects in the month of May, 2008 itself.
75. I am not inclined to accept the submission of learned counsel for the respondent that since the parties had submitted the list of issues to be decided by the learned arbitrator, filing of the statement of claim along with documents and written statement was dispensed with.
76. In my view, the filing of the pleadings stating facts supporting app306.6.423.12 claim, the points at issue and the relief or remedy sought is mandatory and is in compliance with the principles of natural justice. The opponent is always entitled to know the case of the rival party and the reliefs sought by him to enable him to deal with such allegations and to seek the counter relief, if any. No party can seek any relief orally before the learned arbitrator and has to plead his case in writing. In my view provision for filing of pleadings stating facts points at issue and reliefs or remedy sought is not derogable and thus there is no question of waiver under section of theArbitration Act.
77. " The learned Arbitrator in my view has committed patent illegality but not allowing the parties to file pleadings so as to indicate their case and reliefs sought. The impugned award is thus in violation of section 23 of the Arbitration Act, 1996 and deserves to be set aside on this ground alone. In my view, since the award made by the learned arbitrator is not in accordance with provisions in Part-I, such arbitral award can be set aside under section 34 (2) (a) (v) of the Arbitration Act.
78. In view of this unexplained gross delay in rendering the arbitral award of more than three years, the case of the petitioner was seriously prejudiced. Since the learned arbitrator did not fix any hearing and did not follow any procedure though repeatedly requested by the petitioner, the impugned order award deserves to be set aside on this ground also.
79. The respondent was exchanging the correspondence with the learned arbitrator behind the back of the petitioner. Though the petitioner was requesting the learned arbitrator even during the said period of three years to fix an early date of hearing and to follow the procedure, the learned arbitrator did not inform the petitioner that he was not declaring the award in view of the pending negotiations between the parties.
80. In my view, the learned arbitrator could not have visited the place of residence of the petitioner when the matter was subjudice and that also without issuing any notice to the petitioner in advance on the request of the respondent.
81. This Court in the case of Amrutlal Tirathram Gupta (supra) app306.6.423.12 has held that an arbitrator cannot consult anybody behind the back of the parties and even if the arbitrator wants to consult somebody then that person has to be called as witness. In my view, the judgment squarely applies to the facts of this case.
83. Even if it is held that under the arbitration agreement entered into between the parties the learned arbitrator could have held meetings with such intervenors, the information obtained by the learned arbitrator could not have been used as evidence unless it was brought to the notice of the parties and an opportunity ought to have been given to the petitioner to deal with the same.
85. In my view, the issue in respect of flat was subjudice before the Cooperative Court and the parties including the learned arbitrator having decided not to decide that matter, the learned arbitrator could not have adjudicated upon the issue in respect of the said flat. In my view, the award on that issue on the face of it is without jurisdiction and contrary to the agreement arrived at between the parties.
86. In my view, none of the parties had produced copy of such alleged will before the learned arbitrator. Even otherwise the said alleged will of Mrs Kankuben could not have been taken into consideration for the purpose of deciding the rights of the parties in respect of the said flat. Learned arbitrator in my view has exceeded his jurisdiction by referring to the alleged testamentary document and deciding the said issue based on the said alleged will and bequest alleged to have been made therein.
88. Learned arbitrator in paragraph 2.25 has referred to such confirmation alleged to have been obtained form those intervenors and has recorded a finding that all such intervenors had agreed that the petitioner was not pressurized to agree to the payment of Rs.12.51 lacs to the respondent. It is not the case of the respondent that the said intervenors were produced as witness by any of parties or were called in the arbitration meeting in presence of the petitioner.
Learned arbitrator did not disclose to the petitioner about the alleged information obtained by him from those intervenors. Award is in violation of principles of natural justice.
89. A perusal of the record also indicates that on the said principal amount of Rs.12.51 lacs the learned arbitrator had allowed app306.6.423.12 compound interest @ 18% p.a from 1 st April 1999 to 31st March 2011 which worked out to Rs.78,65,778/-. In my view, the award shows patent illegality on the face of the record which goes to the root of the matter. No reliance on the alleged will could be placed by the learned arbitrator.
94. In so far as the award of interest @ 18% p.a. awarded by the learned arbitrator on most of the claims at compound rate and that also with effect from 31st March 1999 is concerned. In my view since the entire award shows patent illegality and is in gross violation of the principles of natural justice and the award is set aside on that ground the award in respect of interest is also set aside.
95. Under section 37 (1) (a) of the Arbitration Act the learned arbitrator in the absence of agreement between the parties can award the reasonable rate of interest and cannot award at compound rate that also @ 18% p.a. The award in respect of the interest deserves to be set aside on that ground."
9. The learned Single Judge therefore taking note of various anomalies in the vital procedure to be followed by the learned arbitrator and the reasons given by the learned Arbitrator held that the Award is contrary to the law and the record. We also find there is no perversity in the judgment of the learned Single Judge in view of the above admitted position of facts and law. No case is made out for the appellate Court to interfere with the order passed by the learned Single Judge.
10. This Court in a judgment delivered in SAYHADRI EARTHMOVERS VS L AND T FINANCE LIMITED & ANR 2011 (4) Mh L.J. 200 has elaborated the basic parameters for Arbitrator to followapp306.6.423.12 while dealing with any arbitration, out of which the following parameters are relevant :
"Equal and fair treatment
(xii) The Arbitrator must give equal opportunity to both the parties and therefore bound to follow the principles of natural justice, fair play and equity.
CPC & Evidence Act.
(xiii) Though Code of Civil Procedure and the Evidence Act are not applicable strictly, (section 19) but the settled principles do apply. The power of Arbitral Tribunal to determine the admissibility, relevance, materiality and weight of any evidence just cannot be overlooked.
To decide jurisdiction:
(xix) The Arbitrator is empowered to decide his own jurisdiction if objected and even the issue of existence of arbitration agreement (S/16) . It should be decided as early as possible by passing reasoned order, as this could be additional ground of challenge under section 34 of the Arbitration Act.
Substantial laws customs commercial usages and practice (xx) The Arbitrator is bound by the substantive laws of the land as well as procedural laws and practice and principle apart from the custom and usage of the trade referring the business and commerce between the parties, in all respects.
To analyse the evidence and the record (xxi) The Arbitrator is required to consider all the material and evidence/documents placed by the parties on record read with the evidence led by the parties. The Arbitrator is therefore bound to analyse and appreciate the same by giving proper and correct interpretation of terms of the contract subject to provisions of law, before passing reasoned interim or final award. The Arbitrator to pass reasoned interim and/or final award, unless agreed otherwise."
11. In view of the above reasons and the law, the contentions so app306.6.423.12 raised by the learned counsel appearing for the appellant that the Award was passed by the learned Arbitrator based upon the documents and agreed procedure including interpretation of the Agreement so referred ought not to have been disturbed by the learned Single Judge as there was no perversity and/or any illegality while passing the Award by the learned Arbitrator is unacceptable. The appeal is liable to be dismissed.
12. The Apex Court in Venkatesh Construction Company vs Karnataka Vidyuth Karkhane Limited (Kavika) 2016 (2) ALL MR 953 (S.C.) has observed as under :
"The Appellate Court may not interfere with the finding of the trial court unless the finding recorded by the trial court is erroneous or the trial court ignored the evidence on record."
13. In view of above, present appeal is liable to be dismissed.
Hence this order:
ORDER Appeal is dismissed. No costs.
     G.S.KULKARNI, J                                                  ANOOP V.MOHTA, J

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