Full Judgment Text
NEUTRAL CITATION NO. 2023/DHC/001185
* IN THE HIGH COURT OF DELHI AT NEW DELHI
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% Date of order: 1 February 2023
+ O.M.P. (COMM) 509/2020, I.A. 9551/2020 & I.A. 18042/2022
MS MITTAL PIGMENTS PVT LTD ..... Petitioner
Through: Mr. Vijay Kumar Pandey,
Advocate.
versus
MS GAIL GAS LIMITED ..... Respondent
Through: Mr. Deepayan Mandal, Mr. Naman
Varma and Mr. Mridul Bansal,
Advocates
CORAM:
HON'BLE MR. JUSTICE CHANDRA DHARI SINGH
O R D E R
CHANDRA DHARI SINGH, J (Oral)
1. The instant petition under Section 34 of the Arbitration and
Conciliation Act, 1996 (hereinafter “Arbitration Act”) has been filed on
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behalf of the petitioner against the ex-parte Arbitral Award dated 21
October 2019 (hereinafter “the Award”) passed by the learned Sole
Arbitrator. The following reliefs are prayed for on behalf of the
petitioner:-
“a) Set aside the ex-parte award dated 21.10.2019 received
on 05.11.2019 passed by Hon'ble Mr. Justice K.
Ramamoorthy (Retd.) in arbitration proceedings held
between M/s Gail Gas Ltd. and M/s Mittal Pigments Pvt. Ltd.
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b) And/or pass such other order/orders as this Hon'ble Court
may deem it to be fit and proper in the facts and
circumstances of the case.”
FACTUAL MATRIX
2. The facts relevant for adjudication of the instant petition are as
under:-
a. The petitioner is a Private Limited Company engaged in
manufacturing of metals and chemicals and the respondent is a
Central Public Sector Undertaking having diversified interests
across the Natural Gas value chain of trading, transmission, LPG
production & transmission, LNG re-gasification, petrochemicals,
city gas, etc.
b. The petitioner obtained supply of Natural Gas for its factory
premises located at A-203, Road No.5, Indraprastha Industrial
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Area, Kota, Rajasthan-324005 and accordingly, on 9 March
2010 a Gas Sale Agreement (hereinafter “the Agreement”) was
executed between the parties. In terms of the Agreement, the
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supply was to commence from 1 August 2010 and was to
continue till 2025.
c. As per the agreement, Minimum Guaranteed Quantity of Gas
(hereinafter “MGQ”) had to be purchased every month equivalent
to the quantity obtained by multiplying 90% of the daily
Nominated Quantity. Moreover, in accordance with a Price Side
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Letter dated 9 March 2010, the selling price of the Gas for the
quarter beginning from January 2010 to March 2010 was decided
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to be Rs. 17.2/- SCM, including taxes. Another Side Letter dated
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15 April 2010 was executed between the parties, whereby certain
clauses of the Agreement were amended/revised, including the
Arbitration Clause.
d. The amended Arbitration Clause read as follows:-
“If any dispute, difference or question shall at any time
hereafter arise between the parties hereto or their
respective representatives in respect of the
construction of these presents or concerning anything
hereunder contained or arising out of these presents or
as to the rights, liabilities or duties of the said parties
hereunder, which cannot be mutually resolved by the
parties, within (60) days after written notice of a
dispute by one party to the other party, the same shall
be referred to sole Arbitration. After the expiration of
sixty (60) days seller shall suggest a panel of three (3)
distinguished persons to the Buyer to select any one
among them to act as the sole Arbitrator within thirty
(30) days. The Buyer shall select sole Arbitrator within
thirty (30) days from the receipt of communication
suggesting the panel of Arbitrators. In the event of
failure of the Buyer to select the sole Arbitrator within
thirty (30) days from the receipt of the communication
suggesting the panel of Arbitrator, the right of
selection of Sole Arbitrator by the Buyer shall stand
forfeighted and the seller shall have discretion to
proceed with the appointment of sole Arbitrator. The
decision of the Arbitrator shall be binding on both the
parties. “The Arbitration proceedings shall be held in
accordance with the provision of the Arbitration and
Conciliation Act, 1996, as amended from time to time.
The Arbitrator shall decide by whom and in what
proportions the Arbitrator‟s fees as well as cost
incurred in Arbitration shall be borne. The Arbitrator
may, with the consent of the parties, enlarge the time,
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from time to time, to make and publish award, as the
case may be. The venue of Arbitration shall be at
Delhi.”
e. During the course of the business between the parties,
certain disputes arose amongst them, regarding which
communications were also made. The issue initially arose
regarding the delay in commencement date and thereafter,
regarding the modification in the Daily Nominated Quantity, then
regarding the invoices and ultimately regarding the payment and
the default thereto.
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f. The respondent, vide its letter dated 7 August 2017,
intimated the petitioner that its failure to clear outstanding dues of
Rs. 1,29,73,780.01/- within the stipulated period entitled the
respondent to terminate the Agreement, as per Clause 15.2 (vi) of
the Agreement. Thereafter, the respondent also served a Legal
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Notice dated 27 March 2017 upon the petitioner invoking the
Arbitration Clause of the Agreement and suggesting three names
of potential Sole Arbitrators.
g. The petitioner was advised not to participate in the
arbitration proceedings since the petitioner had already
approached the District Court at Kota, Rajasthan against the
respondent seeking injunction against the invocation of Letter of
Credit. In the month of December 2018, the petitioner was
furnished a letter from the Arbitrator informing the date and place
of arbitration, where the petitioner did not partake.
h. Meanwhile, the Arbitrator initiated, held and concluded the
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arbitration proceedings and made an ex-parte Award dated 21
October 2019.
i. Aggrieved by the said ex-parte Award, the petitioner has
approached this Court, seeking a challenge to the same.
SUBMISSIONS
3. Learned counsel appearing on behalf of the petitioner submitted
that the Award was erroneous and bad in law. There was no attempt to
serve the petitioner with a Show Cause Notice or any other pre-emptory
notice/order before the learned Arbitrator proceeded ex-parte against the
petitioner. It is also submitted that the learned Arbitrator failed to observe
the provisions laid down under Section 25 (b) and 25 (c) of the
Arbitration Act. According to the said provisions, the learned Arbitrator
had the powers to inquire whether there was sufficient cause for absence
of the party at the hearing and for the same should have issued a notice
before proceeding ex-parte.
4. It is submitted that not only is the Award liable to be set aside for
the reason of being proceeded with ex-parte without sufficient notice, but
also because the learned Arbitrator has passed an unreasoned order,
summarily allowing the claims of the respondent without sufficient cause
or elaborate analysis and evaluation.
5. Learned counsel submitted that the Award has been passed without
proper appreciation of the terms of the Agreement executed between the
parties. Referring to Clause 11.1 (A)(ii) of the Agreement, learned
counsel for the petitioner submitted that the respondent was duty bound
to raise MGQ obligations, if any, in the second fortnight invoice of each
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month which was not done by the respondent, however, the learned
Arbitrator overlooked this aspect.
6. It is submitted that the learned Arbitrator erroneously awarded
interest @24% without considering the fact that the long term prime
lending rate of State Bank of India in the year 2016 was 14.05%. It is also
submitted that the learned Tribunal went beyond the terms of the contract
between the parties. Learned counsel relied upon the judgment of State of
Rajasthan vs. Nav Bharat Construction Company Ltd ., (2006) 1 SCC
86, Bharat Coking Coal Ltd. vs. Annapurna Construction , (2003) 8
SCC 154 to give force to his arguments.
7. It is also submitted that the learned Arbitrator did not consider
crucial facts in consonance with the terms of the contract, which led to
several erroneous findings. Moreover, the petitioner did not get the
opportunity to present its case before the learned Arbitrator.
8. In light of the aforesaid contentions, it is prayed that the impugned
order may be set aside.
9. Per Contra , the learned counsel appearing on behalf of the
respondent vehemently opposed the instant petition and submitted that
although the petitioner has raised the challenge to the Award stating that
the learned Arbitrator failed to give reasons for the order, however, has
not argued the same in its pleadings. The petitioner is attempting to travel
beyond the pleadings. Reliance has been placed upon National Thermal
Power Corporation Ltd. vs. Wig Brothers Builders and Engineers Ltd .,
2009 SCC OnLine Del 911 , to submit that objections must be pleaded in
the Section 34 petition for them to be entertained by the Court at the time
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of hearing.
10. It is submitted that there is no error in the impugned Award as the
learned Arbitrator has given sufficient reasons while passing the Award.
It is submitted that an arbitral award need not be elaborate and is to be
read in context of the material referred to in it.
11. It is further submitted that the petitioner has entered into the facts
and merits of the case which would amount to re-appreciation of
evidence, and this Court does not have to power to enter into detailed
evidence at this stage under Section 34 of the Arbitration Act.
12. Learned counsel for the respondent opposed the submission made
on behalf of the petitioner that no notice was served with respect to the
arbitration proceedings, however, it is also admitted that in December
2018, a notice was served upon the petitioner by the learned Arbitrator.
Despite the said notice, the petitioner chose not to attend proceedings and
has now approached this Court seeking remedy under Section 34 of the
Arbitration Act.
13. It is submitted that the learned Arbitrator has considered all
material facts, circumstances, claims and the material before it while
passing the Award which is free from errors and hence, there is no merit
in the objections raised on behalf of the petitioner. Therefore, it is
submitted that the instant petition is liable to be dismissed.
ANALYSIS AND FINDINGS
14. Heard learned counsel for the parties and perused the record,
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including the impugned Award dated 21 October 2019.
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15. The petitioner has invoked the jurisdiction of this Court under
Section 34 of the Arbitration Act which reads as under:-
“34. Application for setting aside arbitral award.—
(1) Recourse to a Court against an arbitral award may be
made only by an application for setting aside such award in
accordance with sub-section (2) and sub-section (3).
(2) An arbitral award may be set aside by the Court only if—
(a) the party making the application [establishes on
the basis of the record of the arbitral tribunal that]—
(i) a party was under some incapacity, or
(ii) the arbitration agreement is not valid under
the law to which the parties have subjected it or,
failing any indication thereon, under the law for
the time being in force; or
(iii) the party making the application was not
given proper notice of the appointment of an
arbitrator or of the arbitral proceedings or was
otherwise unable to present his case; or
(iv) the arbitral award deals with a dispute not
contemplated by or not falling within the terms
of the submission to arbitration, or it contains
decisions on matters beyond the scope of the
submission to arbitration: Provided that, if the
decisions on matters submitted to arbitration
can be separated from those not so submitted,
only that part of the arbitral award which
contains decisions on matters not submitted to
arbitration may be set aside; or
(v) the composition of the arbitral tribunal or
the arbitral procedure was not in accordance
with the agreement of the parties, unless such
agreement was in conflict with a provision of
this Part from which the parties cannot
derogate, or, failing such agreement, was not in
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accordance with this Part; or
(b) the Court finds that—
(i) the subject-matter of the dispute is not
capable of settlement by arbitration under the
law for the time being in force, or
(ii) the arbitral award is in conflict with the
public policy of India.
[Explanation 1.—For the avoidance of any doubt, it is
clarified that an award is in conflict with the public policy of
India, only if,—
(i) the making of the award was induced or
affected by fraud or corruption or was in
violation of section 75 or section 81; or
(ii) it is in contravention with the fundamental
policy of Indian law; or
(iii) it is in conflict with the most basic notions
of morality or justice.
Explanation 2.—For the avoidance of doubt, the test as to
whether there is a contravention with the fundamental policy
of Indian law shall not entail a review on the merits of the
dispute.]”
16. The scope of Section 34 of the Arbitration Act is limited yet
extensive. The contents of the provision abundantly show that the
intention of legislature while enacting the Arbitration and Conciliation
Act, as well as while amending the same, was that there should be limited
intervention of the Courts in arbitral proceedings, especially after the
proceedings have been concluded and an Award thereto has been made
by the concerned Arbitrator(s). Therefore, the situations in which a Court
can have been clearly laid down under the provision where a Court can
interfere. It is an established principle of law that a Court exercising its
jurisdiction under Section 34 of the Arbitration Act cannot enter in to the
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merits of the case while appreciating facts and evidence afresh.
Therefore, this Court as well, without entering into the merits of the case,
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shall examine the impugned Award dated 21 October 2019.
17. By way of filing the instant petition, the petitioner has sought
indulgence of this Court while challenging the Arbitral Award in
question. Upon a perusal of the pleadings and the upon hearing the
learned counsel for the parties at length, this Court finds that the
controversy between the parties qua the impugned Arbitral Award may
be narrowed down to the following issues:-
Issue I- Whether sufficient notice was served upon the petitioner
regarding arbitration proceedings as well as ex-parte proceedings.
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Issue II- Whether the Award dated 21 October 2019 was a
reasoned Award not inviting the interference from this Court.
Issue I
18. A preliminary objection raised on behalf of the petitioner is that
sufficient notice was not served upon it before the arbitration proceedings
were proceeded against him ex-parte.
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19. The respondent had furnished the notice dated 27 March 2018
upon the petitioner, in accordance with Section 21 of the Arbitration Act,
suggesting three Arbitrators to adjudicate the disputes between the
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parties. To the said notice, the petitioner furnished its reply dated 4 May
2018, whereby the respondent was intimated that proceedings under Suit
No. 311/2016 before the Civil Court against the respondent were initiated
and pending, therefore, the petitioner could not participate in the
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arbitration proceedings.
20. Thereafter, admittedly no communication was made by or on
behalf of the respondent intimating the initiation of arbitration
proceedings. It was only in the month of December 2018, that the
petitioner had received a communication from the Arbitrator concerned,
calling upon the petitioner to appear for the arbitration proceedings at the
time and place decided. It is the case of the petitioner that since the
proceedings against the respondent pertaining to the disputes between the
parties were already pending, which was also in the knowledge of the
respondent, the arbitration proceedings ought not to have been initiated or
continued.
21. The Section 25 of the Arbitration Act, provides for powers of the
Arbitrator to terminate the arbitration proceedings, forfeit the right of
defence, and proceed ex-parte in the following cases:-
“25.Default of a party.—
Unless otherwise agreed by the parties, where, without
showing sufficient cause,—
(a) the claimant fails to communicate his statement of
claim in accordance with sub-section (1) of section 23, the
arbitral tribunal shall terminate the proceedings;
(b) the respondent fails to communicate his statement
of defence in accordance with sub-section (1) of section 23,
the arbitral tribunal shall continue the proceedings without
treating that failure in itself as an admission of the
allegations by the claimant [and shall have the discretion to
treat the right of the respondent to file such statement of
defence as having been forfeited].
(c) a party fails to appear at an oral hearing or to
produce documentary evidence, the arbitral tribunal may
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continue the proceedings and make the arbitral award on the
evidence before it.”
22. The instant case lies within the ambit of Section 25(c) of the
Arbitration Act. Here, the petitioner chose not to appear before the
learned Arbitrator. However, the pertinent question to be answered is
whether before proceeding ex-parte against the petitioner, was there any
procedural requirement, including furnishing of notice etc., to be fulfilled
by the learned Arbitrator or the respondent.
23. A bare reading of the provision shows that an Arbitrator may
continue the proceedings and make the arbitral award on the evidence
before it where a party fails to appear at an oral hearing or to produce
documentary evidence without showing sufficient cause, unless otherwise
is decided amongst the parties. It is clear, that before taking an action in
accordance with Section 25(c) of the Arbitration Act, the Arbitrator is to
examine whether the absence of the parties is with or without showing
sufficient cause. Therefore, it is evident that an opportunity is to be given
to a party to the dispute before the Arbitrator decides to proceed on the
basis of the evidence before it.
24. In the landmark judgment of Juggilal Kamlapat v. General Fibre
Dealers Ltd., 1954 SCC OnLine Cal 53, the principle of pre-emptory
notice for ex-parte proceedings and principle of prejudice being cause in
case of such ex-parte proceedings was discussed :-
“20. On those facts, the Court held that the holding of the
arbitration proceedings on the first day without any notice to
the defendants was itself sufficient to invalidate the award
and that, throughout, the arbitrators had rushed the hearing
of the case without paying any attention to the protests of the
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defendants. Referring to the meeting of the first day, the
learned Chief Justice observed that in holding that meeting,
the arbitrators did not appear to him to have acted “with that
absolute impartiality, with that sense of fairness to both
sides”, which was “so essential and so preliminary an
element” in cases of that class. The necessity of giving a
notice of an intention to proceed ex parte in the event of the
non-appearance of a party was not specifically referred to in
the judgment, but the learned Chief Justice said that it was a
strong thing for the arbitrators to proceed after the letter of
the defendants' attorney without giving any further intimation
that they intended to proceed. The conduct of the arbitrators,
it was held, amounted to misconduct.
25. More or less of the same nature was the case of —
„Bhowanidas Ramgobind v. Harsukhdas Balkishendas‟, AIR
1924 Cal 524 (D), decided by Mookerjee and Rankin, JJ.
There also, no notice was given by the arbitrators that they
would proceed ex parte against any party who would not
appear and an award was made against certain parties, who
were the sellers, in their absence. The principles laid down in
the earlier case of AIR 1920 Cal 853 (C), were reiterated in
the judgment. As to the facts, it was pointed out that on a
certain date the sellers had intimated that they would not
submit to the jurisdiction of the tribunal of arbitrators as in
their view, that tribunal could not possibly have any
jurisdiction over the subject matter of the dispute. They had
not also taken a part in the arbitration proceedings at any
stage, those circumstances, the Court held that the sells could
not be said to have been prejudiced by the course taken by
the arbitrators and, therefore, the award, although made ex
parte against them, … not liable to be set aside.
29. If, on the other hand, it appears that the defaulting party
had absented himself with a view to preventing justice or
defeating the object of the reference, the arbitrator should
issue a notice that he intends at a specified time and place to
proceed with the reference and that if the party concerned
does not attend, he will proceed in his absence. But if after
making such a peremptory appointment and issuing such a
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notice, the arbitrator does not in fact proceed ex parte on the
day fixed, but fixes another subsequent date, he can-, not
proceed ex parte on such subsequent date unless he issues a
similar notice in respect of that date as well.
30. If he issues a similar notice and the party concerned does
not appear, an award made ex parte, will be in order. But if
he does not issue such a notice on the second occasion, but
nevertheless proceeds ex parte, the award will be liable to be
set aside in spite of a notice of a peremptory hearing having
been given in respect of the earlier date, subject, however, to
the condition that prejudice was caused to the party against
whom the ex parte order was made. But this duty to give
notice of an intention to proceed ex parte is not an absolute
duty.
31. If it appears from the circumstances of the case that a
particular party is determined not to appear before the
arbitrators in any event, as when he has openly repudiated
either the reference itself or the particular arbitrators and
has shown no desire to recant, the arbitrators are not
required to issue a notice of an intention to proceed ex parte
against such a recusant person and may proceed ex parte
and make a valid award without issuing a notice. The better
course, however, even in such a case is to issue a notice and
give the party concerned a chance to change his mind.
32. The above is what the arbitrators are required on their
own part to do. Where the question arises after an ex parte
award has, in fact, been made and it appears that no notice
of an intention to proceed ex parte had been given, the
principle to be applied is that the award will not be upheld,
unless it is shown or it appears that the omission to give a
notice has not caused any prejudice to the party against
whom the ex parte award was made, because he had made it
abundantly clear that he would not appear before the
arbitrators in any circumstances. When there has been an
omission to give a notice, there will, however, always be a
presumption that prejudice has been caused. But the
presumption can be rebutted by the other party or can be
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seen to be rebutted by circumstances appearing on the face
of the record. The principle to be borne in mind in such cases
is that the failure to attend is not required to be explained on
satisfactory grounds in order to dislodge the ex parte in
ward, but the ex parte award requires to be defended by
establishing that the omission to issue in notice of an
intention to proceed ex parte has not caused any prejudice.”
25. A Co-ordinate Bench of this Court in Lovely Benefit Chit Fund &
Finance Pvt. Ltd vs. Shri Puran Dutt Sood & Ors., 1983 SCC OnLine
Del 22, made observations on the principle of ex-parte proceedings as
under:-
“ 10 . The question for decision is whether in this case the
arbitrator should have given notice of change of venue and of
his intention to proceed ex-parte against the respondents
when they had not appeared before him. There is no hard
and fast rule of giving notice by the arbitrator of his intention
to proceed exparte or to change the venue of arbitration
proceedings. But the principles of natural justice require that
a person cannot be condemned unheard and he should be
afforded a reasonable opportunity of being heard. In the
instant case all the respondents are not residents of Delhi but
of Ludhiana. The petitioner-claiment has its registered office
at New Delhi. The respondents selected their Advocate,
briefed him and paid his fee. They can remain confident that
their lawyer will look after their interest and as such they
have done what was in their power and expect the lawyer to
do the needful. The respondents after having appointed the
lawyer should not suffer for the in action or deliberate
ommission of their counsel. In Rafiq and
another v. Munshilal and another, AIR 1931 S.C. 1400 it has
been held that a party should not suffer for the inaction of his
counsel. In that case appeal was dismissed for default of
appellant's counsel. The dismissal was set aside by the
Supreme Court. In the instant case, as already stated, the
respondents are residents of Ludhiana and therefore the
arbitrator before proceeding ex parte ought to have given
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notice of his intention to proceed ex parte against them on a
specified date, time and place of arbitration proceedings. In
Halsbury's Laws of England, Fourth Edition, Vol. 2 Page
590 page 306 it has been stated as under:
“Where the arbitrator proposes to proceed with the
reference notwithstanding the absence if one of the
parties, it is advisable that he should give that party
distinct notice of his intention to do so. If reasonable
excuse for not attending the appointment can be
shown, the court will set aside an award made by an
arbitrator who has proceeded ex parte.”
In Russell on Arbitration, Nineteenth Edition page 271 the
following passage appears.
“Notice of intention to proceed ex parte:
In general, the arbitrator is not justified in proceeding
ex parte without giving the party absenting himself due
notice. It is advisable to give the notice in writing to
each of the parties or their solicitors. It should express
the arbitrator's intention clearly, otherwise the award
may be set aside. An ordinary appointment for a
meeting with the addition of the word” “Peremptory”
marked on it is, however, sufficient.
If the arbitrator declines to proceed on the first failure
to attend a peremptory appointment, and gives another
appointment, he is not authorised to proceed ex-parte
at the second meeting, unless the appointment for it
was also marked “peremptory” or contained a similar
intimation of his intention.”
In Bhowanidas Ramgobind v. Harasukhdas Balkishendas,
AIR 1924 Calcutta 524 a Division Bench has held that
arbitrators should give notice of their intention to proceed
ex-parte if one of the parties should not appear but their
award is valid if the complainant has not been prejudiced in
any manner by the failure of the arbitrators to give such
notice. In Udaichand Panna Lall v. Debibux Jewanram AIR
1920 Calcutta 553 it has been observed that before an
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arbitrator proceeds ex-parte he should give notice in writing
to each of the parties, otherwise the award may be liable to
be set aside.
In Bratapsingh v. Kishanprasad and Co. Ltd. AIR 1932
Bombay 68 it has been observed that even when an arbitrator
considers that the time and place fixed by him for the meeting
are reasonable and if after service of notice one of the parties
to the arbitration fails to attend before him he is entitled to
proceed with the arbitration ex-parte. But it is still advisable
for him though it is not compulsory, that he should give that
party notice of his intention to do so. Similar observation
were made in Ariyur Mohammad Habeebur Rahman and
others v. Aasuri Varama (died) and another AIR 1974
Andhra Pradesh 113(118) and Prem Nath L. Harsaran Dass
and another v. Om Parkash L. Ram Kishen Dass
Aggarwal AIR 1956 Punjab 187. In Juggilal
Kamlapat v. General Fibre Dealers Ltd. AIR 1955 Calcutta
354 the following principles have been alaid down to
determine whether the failure of the arbitrator to give notice
of his intention to proceed ex parte amounts to misconduct.
1. If a party to an arbitration agreement fails to
appear at one of the sittings, the arbitrator cannot or,
at least, ought not to, proceed ex parte against him at
that sitting. Where in such a case it does not appear
that the non appearance was anything but accidental
or causual, the arbitrator ought ordinarily to proceed
in the ordinary way, fixing another date of hearing and
awaiting the future behaviour of the defaulting party.
2. If, on the other hand, it appears that the defaulting
party had absented himself with a view to preventing
justice or defeating the object of the reference, the
arbitrator should issue a notice that he intends at a
specified time and place to proceed with the reference
and that if the party concerned does not attend, he will
proceed in his absence. But if after making such a
peremptory appointment and issuing such a notice, the
arbitrator does not in fact proceed ex parte on the day
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fixed, but fixes another subsequent date, he cannot
proceed ex parte on such subsequent date unless he
issues a similar notice in respect of that date as well.
3. If he issues a similar notice and the party concerned
does not appear, an award made ex parte, will be in
order. But if he does not issue such a notice on the
second occasion, but nevertheless proceeds ex parte,
the award will be liable to be set aside in spite of a
notice of a peremptory hearing having been given in
respect of the earlier date, subject, however, to the
condition that prejudice was caused to the party
against whom the ex parte order was made. But this
duty to give notice of an intention to proceed ex parte
is not an absolute duty.
4. If it appears from the circumstances of the case that
a particular party is determined not to appear before
the arbitrators in any event, as when he has openly
repudiated either the reference itself or the particular
arbitrators and has shown no desire to recent the
arbitrators are not required to issue a notice of an
intention to proceed ex parte against such a re-sant
person and may proceed ex parte and make a valid
award without issuing a notice. The better course,
however, even in such a case is to issue a notice and
give the party concerned a change to change his mind.
5. Where the question arises after an ex parte award
has, in fact, been made an it appears that no notice of
an intention to proceed ex parte had been given, the
principle to be applied is that the award will not be
unheld, unless it is shown or it appears that the
omission to give a notice has not caused any prejudice
to the party against whom the ex parte award was
made, because he had made it abundantly clear that he
would not appear before the arbitrators in any
circumstances. When there has been an omission to
give a notice, there will, however, always be a
presumption that prejudice has been caused. But the
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presumption can be rebutted by the other party or can
be borne in mind in such cases is that the appearing on
the face of the record. The principle to be borne in
mind in such cases is that the failure to attend is not
required to be explained on satisfactory grounds in
order to dislodge the ex parte award, but the ex parte
award requires to be defended by establishing that the
omission to issue a notice of an intention to proceed ex
parte has not caused any prejudice.”
In Mt. Amir Begam v. Syed Badr-ud-din Husait and others,
AIR 1914 Privy Council 105 it has been observed that if
irregularities in procedure can be proved which would
amount to no proper hearing of the matters in dispute, there
would be misconduct sufficient to vitiate the award without
any imputation on the honesty or partiality of the arbitrator.
Similar observations were made in Sadu Singh and
others v. Ramdeo Singh, AIR 1943 Patna 318.
11 . From these authorities, it is apparent that an arbitrator
ought not to proceed ex parte against a party if he has failed
to appear at one of the sittings. The arbitrator should fix
another date for hearing and give notice to the defaulting
party, of his intention to proceed ex parte on a specified date
time and place. Even after notice if the defaulting party does
not take part in the proceedings the arbitrator may proceed
in his absence.
12 . When an ex parte award has been made the principle to
be applied is that the award will not be upheld unless it is
apparent that the failure to give notice of intention to
proceed ex parte has not caused any prejudice to the party
against whom the ex parte award was made.”
26. The Calcutta High Court in Magma Leasing Limited vs. Gujarat
Composite Limited , 2006 SCC OnLine Cal 235, entertaining the
question whether the Arbitrator therein was right to proceed ex-parte due
to non-appearance of the party on one hearing observed as under, while
remitting the case back to the arbitrator:-
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“ 10. Now coming to the merit of the matter it appears to us
that learned first Court has held upon applying his mind that
opportunity of being heard was not given and also that no
reason was given by the learned Arbitrator. We shall deal
with the decision of the first Court regarding giving of
opportunity. It appears from the records that learned
Arbitrator at one point of time proceeded with this matter
without any evidence being adduced. And we think this
procedure is not illegal.
11. From the records we find the notices were given upon
both the parties on each and every occasion. The respondent
appeared before the learned Arbitrator and participated in
the proceedings either effectively making submission or
obtaining adjournment. However, on the last occasion the
respondent failed to appear and on that date itself the
learned Arbitrator proceeded with finally and concluded the
hearing and thereafter award was passed.
13. In our opinion the aforesaid provision is enabling
provision and ample discretion has been left with learned
tribunal with the word “may”. It is settled position of law
that power of discretion is exercised with restraint and when
there other option left, in particular in judicial and quasi-
judicial proceedings. It does not mean that the learned
Arbitrator should exercise this extreme power in case of one
default. We are not for a single moment supporting any
lackadaisical litigant to take refuge to the aforesaid
discretionary provision. Discretion is always a judicial if not
judicious. Judicious action demands in a case of this nature
that on one hand unnecessary latitude of indulgence should
not be given, and on the other hand the learned Arbitrator
should not proceed hastily. There are decisions of this Court
while considering and discussing the procedure of
arbitration proceedings held under repealed Arbitration Act,
1940 wherein Court formulated concept of serving
peremptory notice of hearing so that a litigant may be
warned if he defaults in future, final act may be performed by
the learned Arbitrator. In this connection a decision of
Division Bench of this Court reported in AIR 1955 Cal 354
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may be referred to.
4. Here factually the respondent defaulted only on one day
and we think the learned Arbitrator should not have
exercised discretionary power while concluding the hearing.
15. We think another chance should have been given because
in the record there is no successive failure on the part of the
respondent, although adjournment was sought for, true. But
in all fairness a peremptory notice should have been given.
Under those circumstances, we feel the reasoning of the first
Court is justified. However, the aforesaid elaborate
discussion was not recorded by His Lordship.
18. Learned Arbitrator shall proceed on day-to-day basis and
shall give chance of hearing to the respondent on merit and
he shall proceed from the stage where it was left by him and
will not start de novo…”
27. Therefore, it is abundantly clear that, though not stipulated under
the Act in clear terms, it has always been preferred and encouraged that
an Arbitrator provides a preemptory notice to any party against whom it
is seeking to proceed ex-parte . There is no doubt to the fact that in the
instant case the learned Arbitrator did not communicate the facts of
proceedings being initiated, continued and proceeded with ex-parte to the
petitioner, which it ought to have at some point of time before making the
Award. Strong observations have been made on this question by the
Courts and hence, this Court also submits to the observations as quoted in
the foregoing paragraphs. The action on part of the learned Arbitrator was
erroneous and hence, warrants interference from this Court.
th
28. Another aspect to be seen it that as per the reply dated 4 May
2018, the respondent also had the knowledge of pending proceedings
before the Civil Court at Kota, Rajasthan, yet after over six months, the
arbitration proceedings were initiated, continued and concluded without
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the petitioner. Therefore, this Court finds that the Suit pertaining to the
same issues between the parties being pending was in itself sufficient
cause for learned Arbitrator not to proceed ex-parte against the petitioner
after only one intimation and opportunity to appear for arbitration
proceedings.
Issue II
29. To evaluate second issue, it is to be seen whether an Arbitrator is to
pass a well reasoned order while passing an award, if yes, whether in the
instant case the impugned Award could said to have been a reasoned
award.
30. At the very outset, this Court deems it fit to refer to Section 31(3)
of the Arbitration Act, which is reproduced hereunder:-
“31. Form and contents of arbitral award.-
(3) The arbitral award shall state the reasons upon
which it is based, unless—
(a) the parties have agreed that no reasons are to be
given, or
(b) the award is an arbitral award on agreed terms
under Section 30.”
31. It is apparent that one of the essential requirements to be met while
making an award includes that the reasons for passing the award must be
stated.
32. The Hon’ble Supreme Court in Dyna Technologies (P) Ltd. vs.
Crompton Greaves Ltd. , (2019) 20 SCC 1, while determining a similar
question held as under :-
“ 26. Having established the basic jurisprudence behind
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Section 34 of the Arbitration Act, we must focus on the
analysis of the case. The primary contention of the learned
counsel appearing on behalf of the appellant is that the
award by the learned Tribunal was perverse for want of
reasons. The necessity of providing reasons has been
provided under Section 31 of the Arbitration Act, which
reads as under:
“ 31. Form and contents of arbitral award .—(1)-(2)
*
(3) The arbitral award shall state the reasons upon
which it is based, unless—
(a) the parties have agreed that no reasons are to be
given, or
(b) the award is an arbitral award on agreed terms
under Section 30.”
27. Under the Uncitral Model Law the aforesaid provision is
provided as under:
“ 31. (2) The award shall state the reasons upon which
it is based, unless the parties have agreed that no
reasons are to be given or the award is an award on
agreed terms under Article 30.”
28. Similar to the position under the Model Law, India also
adopts a default rule to provide for reasons unless the parties
agree otherwise. As with most countries like England,
America and Model Law, Indian law recognises enforcement
of the reasonless award if it has been so agreed between the
parties.
35. When we consider the requirement of a reasoned order,
three characteristics of a reasoned order can be fathomed.
They are: proper, intelligible and adequate. If the reasonings
in the order are improper, they reveal a flaw in the decision-
making process. If the challenge to an award is based on
impropriety or perversity in the reasoning, then it can be
challenged strictly on the grounds provided under Section 34
of the Arbitration Act. If the challenge to an award is based
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on the ground that the same is unintelligible, the same would
be equivalent of providing no reasons at all. Coming to the
last aspect concerning the challenge on adequacy of reasons,
the Court while exercising jurisdiction under Section 34 has
to adjudicate the validity of such an award based on the
degree of particularity of reasoning required having regard
to the nature of issues falling for consideration. The degree
of particularity cannot be stated in a precise manner as the
same would depend on the complexity of the issue. Even if the
Court comes to a conclusion that there were gaps in the
reasoning for the conclusions reached by the Tribunal, the
Court needs to have regard to the documents submitted by
the parties and the contentions raised before the Tribunal so
that awards with inadequate reasons are not set aside in
casual and cavalier manner. On the other hand, ordinarily
unintelligible awards are to be set aside, subject to party
autonomy to do away with the reasoned award. Therefore,
the courts are required to be careful while distinguishing
between inadequacy of reasons in an award and
unintelligible awards.
37. In case of absence of reasoning the utility has been
provided under Section 34(4) of the Arbitration Act to cure
such defects. When there is complete perversity in the
reasoning then only it can be challenged under the provisions
of Section 34 of the Arbitration Act. The power vested under
Section 34(4) of the Arbitration Act to cure defects can be
utilised in cases where the arbitral award does not provide
any reasoning or if the award has some gap in the reasoning
or otherwise and that can be cured so as to avoid a challenge
based on the aforesaid curable defects under Section 34 of
the Arbitration Act. However, in this case such remand to the
Tribunal would not be beneficial as this case has taken more
than 25 years for its adjudication. It is in this state of affairs
that we lament that the purpose of arbitration as an effective
and expeditious forum itself stands effaced.
42. From the facts, we can only state that from a perusal of
the award, in the facts and circumstances of the case, it has
been rendered without reasons. However, the muddled and
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confused form of the award has invited the High Court to
state that the arbitrator has merely restated the contentions
of both parties. From a perusal of the award, the inadequate
reasoning and basing the award on the approval of the
respondent herein cannot be stated to be appropriate
considering the complexity of the issue involved herein, and
accordingly the award is unintelligible and cannot be
sustained.”
33. Further, Som Datt Builders Ltd. vs. State of Kerala , (2009) 10
SCC 259, an elaborate finding regarding reasoned arbitral awards was
made by the Hon’ble Supreme Court, which is reproduced hereunder:-
“20. Section 31(3) mandates that the arbitral award shall
state the reasons upon which it is based, unless—(a) the
parties have agreed that no reasons are to be given, or (b)
the award is an arbitral award under Section 30. ….. By
legislative mandate, it is now essential for the Arbitral
Tribunal to give reasons in support of the award. It is
pertinent to notice here that the 1996 Act is based
on U NCITRAL Model Law which has a provision of stating the
reasons upon which the award is based.
21. In Union of India v. Mohan Lal Capoor [(1973) 2 SCC
836: 1974 SCC (L&S) 5] this Court said: (SCC p. 854, para
28)
“28. … Reasons are the links between the materials on
which certain conclusions are based and the actual
conclusions.”
22. In Woolcombers of India Ltd. v. Workers' Union [(1974)
3 SCC 318 : 1973 SCC (L&S) 551 : AIR 1973 SC 2758] this
Court stated: (SCC pp. 320-21, para 5)
“5. … The giving of reasons in support of their
conclusions by judicial and quasijudicial authorities when
exercising initial jurisdiction is essential for various reasons.
First, it is calculated to prevent unconscious unfairness or
arbitrariness in reaching the conclusions. The very search
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for reasons will put the authority on the alert and minimise
the chances of unconscious infiltration of personal bias or
unfairness in the conclusion. The authority will adduce
reasons which will be regarded as fair and legitimate by a
reasonable man and will discard irrelevant or extraneous
considerations.”
23. In S.N. Mukherjee v. Union of India [(1990) 4 SCC 594 :
1990 SCC (Cri) 669 : 1991 SCC (L&S) 242 : (1991) 16 ATC
445] the Constitution Bench held that recording of reasons
“(i) guarantee consideration by the authority; (ii)
introduce clarity in the decisions; and (iii) minimise
chances of arbitrariness in decision-making.” (SCC p.
612, para 35)
25. The requirement of reasons in support of the award under
Section 31(3) is not an empty formality. It guarantees fair
and legitimate consideration of the controversy by the
Arbitral Tribunal. It is true that the Arbitral Tribunal is not
expected to write a judgment like a court nor is it expected to
give elaborate and detailed reasons in support of its
finding(s) but mere noticing the submissions of the parties or
reference to documents is no substitute for reasons which the
Arbitral Tribunal is obliged to give. Howsoever brief these
may be, reasons must be indicated in the award as that would
reflect the thought process leading to a particular
conclusion. To satisfy the requirement of Section 31(3), the
reasons must be stated by the Arbitral Tribunal upon which
the award is based; want of reasons would make such award
legally flawed.”
34. Therefore, it is evident that the Hon’ble Supreme Court has
reiterated the significance of passing a reasoned award. As per the
interpretation as aforesaid, the award is not just to be reasoned by such
reasons, which give effect to the findings and the final award, must be
proper, intelligible and adequate. The recording of reasons and the
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findings thereto is also a testament to the fact that the concerned arbitrator
has applied his mind while passing the award and deciding claims in
favour of either or both the parties. An award without reasons and
findings is mere reiteration of the claims of the parties. Hence, the
passing of a reasoned award laying down the grounds and findings was
imperative for the learned Arbitrator.
35. The question which now remains is whether the impugned Award
st
dated 21 October 2019 was reasoned. The relevant portion of the Award
whereby the claims were decided in the favour of the respondent is
reproduced herein:-
“9. Having considered the materials submitted by the
claimant, I am satisfied that the claimant has proved its claim
against the respondent for the amount due from the
respondent at Rs.1,75,86,533.78.
12. In view of this, the claimant is entitled to interest at the
rate of 24% P.A. on the sum of Rs. 1,75,86,533.78 w.e.f.
01.04.2019 till the date of payment.
13. Regarding the costs, I direct the respondent to pay the
claimant a sum of Rs. 1,76,962/-.
14. I place on record all assistance rendered by Mr.
Deepayan Mandal Ld. Counsel for the Claimant on the
projection of the case explaining the details of the matter in
clear terms.
15. Accordingly, I pass the award:
I. Directing the respondent to pay Rs. 1,75,86,533.78
II. Directing the respondent to pay Interest at the rate
of 24% P.A on the sum of Rs. 1,75,86,533.78 w.e.f.
01.04.2019 till the date of payment.”
36. A perusal of the order reveals that the same is a mere four page
order reiterating the claims of the respondent and making the aforesaid
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summary findings while accepting the said claims. The order does not
reveal appreciation of evidence or material or record and also does not lay
down the grounds taken for the decision made. The claims were decided
in the favour of the respondent as they were claimed and pleaded before
the learned Arbitrator.
37. The learned Arbitrator need not have given elaborate,
comprehensive or extensive Award but the mere recording of reasons for
the findings made was an indispensable requirement to be met. Fulfilling
the requirements under Section 31(3) of the Arbitration Act, is not a mere
formality, but this provision makes way for a fair, reasonable and
equitable opportunity to have the objective knowledge of the reasons why
a claim is not decided in their favour. Accordingly, this Court finds that
the principles laid down by the Hon’ble Supreme Court favour the case of
the petitioner qua the requirement of passing a reasoned order being
indispensable.
CONCLUSION
38. In light of the facts, circumstances, contentions raised in the
pleadings, argument made on behalf of the parties, the observations of the
Hon’ble Supreme Court and other High Courts of the country, the
provisions of the Arbitration Act and the discussion in the foregoing
paragraphs, this Court finds merit in the petition and is inclined to allow
the same.
st
39. The Arbitral Award dated 21 October 2019 was passed without
proper communication to the petitioner, before proceeding ex-parte, and
without affording reasonable opportunity to present its case. The learned
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Arbitrator did not make adequate efforts to be satisfied that sufficient
cause was to be shown for non-appearance before proceeding ex-parte
against the petitioner. Further, it was incumbent for the learned Arbitrator
to furnish reasons for his findings in favour of the respondent.
40. Accordingly, the instant petition and the prayers therein are
st
allowed and ex-parte Arbitral Award dated 21 October 2019 is set aside
for the reasons stated as above.
41. Pending applications stand disposed of, in light of the observations
made above.
42. The order be uploaded on the website forthwith.
CHANDRA DHARI SINGH, J
FEBRUARY 1, 2023
dy/ms
Click here to check corrigendum, if any
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