An ex parte arbitral award is unsustainable when non-service of documents denies a meaningful hearing.

The Petitioners challenged, under Section 34 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”), an award dated 7 March 2022 directing them and Respondent No. 2 to jointly and severally pay Respondent No. 1 approximately Rs.18.95 crores, with 18% interest, 2% penal interest and costs.

Petitioner No. 1, the deceased borrower’s widow, and Respondent No. 2 had guaranteed a cash-credit facility of Rs.1.50 crores availed by Dinesh Shamji Rita; the facility was additionally secured by a mortgage over a Mumbai flat.

Respondent No. 1 subsequently claimed that a further sum of Rs.3 crores had been advanced, resulting in a total credit facility of Rs.4.50 crores, although the Petitioners denied executing any guarantee or security documents for the additional amount.

Statutory arbitration was initiated under Section 84 of the Multi-State Co-operative Societies Act, 2002 (“MSCS Act”) at Belgaum.

The Petitioners alleged that they received the statement of claim without its supporting documents and repeatedly requested copies, but were directed to collect them from the Arbitrator at Belgaum.

After only an initial notice, no subsequent hearing notices, minutes, affidavit of evidence or documents were served. The Arbitrator proceeded ex parte and passed the impugned award.

Whether the Bombay High Court had jurisdiction under Sections 2(1)(e) and 34 of the Arbitration Act to entertain the challenge when the arbitral sittings were held at Belgaum.

Whether failure to supply the documents relied upon by Respondent No. 1, and failure to issue notices of subsequent hearings and of the intention to proceed ex parte, denied the Petitioners a full opportunity to present their case under Sections 18 and 24(3) of the Arbitration Act.

Whether the impugned award was contrary to Section 31(3) of the Arbitration Act for being unintelligible, inadequately reasoned and unsupported by an evaluation of the evidence.

Whether the Arbitrator could hold the Petitioners jointly and severally liable for a Rs.4.50-crore facility when the guarantees and mortgage documents apparently covered only a Rs.1.50-crore facility.

Section 84(5) of the MSCS Act applies the Arbitration Act to statutory arbitrations except where otherwise provided.

Under Section 2(1)(e) of the Arbitration Act, the competent court is the principal Civil Court, or the High Court exercising ordinary original civil jurisdiction, having jurisdiction over the subject matter as if it were a suit.

Sections 18 and 24(3) require equal procedural treatment and communication to each party of statements, documents and evidentiary material supplied to the tribunal or relied upon by it.

Section 34(2)(a)(iii) permits setting aside an award where a party was not given proper notice or was otherwise unable to present its case.

Section 31(3) requires a reasoned award; applying Dyna Technologies Pvt. Ltd. v. Crompton Greaves Ltd., reasoning must be proper, intelligible and adequate.

Under Section 20, a place where hearings are merely conducted for convenience under Section 20(3) does not necessarily become the juridical seat; applying BGS SGS Soma JV v. NHPC Ltd., the stated place is the seat only where the circumstances demonstrate such designation or determination.

An arbitrator proceeding ex parte must ordinarily give notice of the intention to do so and a reasonable opportunity to participate, as reflected in Sohan Lal Gupta v. Asha Devi Gupta and Lovely Benefit Chit Fund & Finance Pvt. Ltd. v. Puran Dutt Sood.

The Court held that Belgaum was only the place where the Arbitrator held sittings and was not shown to be the juridical seat: the MSCS Act contained no territorial designation, there was no agreement or determination under Section 20 fixing Belgaum as the seat, and the material cause of action—including sanction and execution of the loan documents, residence of the parties and location of the mortgaged property—was in Mumbai.

On the procedural issue, the Petitioners promptly requested the documents listed with the statement of claim, but Respondent No. 1 did not deny their non-supply and instead directed the Petitioners to obtain them from the Arbitrator. The Arbitrator nevertheless relied on the documents and Respondent’s affidavit of evidence without ensuring their communication to the Petitioners.

Further, after the initial notice, no subsequent hearing notices or notice of intention to proceed ex parte were issued. This deprived the Petitioners of a meaningful opportunity to file their defence, test the evidence and present arguments, attracting Sections 18, 24(3) and 34(2)(a)(iii).

The award also merely reproduced the Respondent’s evidence, without analysing the loan application, guarantee, mortgage deed, account statement or the alleged additional Rs.3-crore facility. It therefore failed to explain how guarantors whose documents were limited to Rs.1.50 crores could be made liable for Rs.4.50 crores, rendering the award inadequately reasoned and perverse.

It further held that non-supply of documents, failure to communicate subsequent proceedings and absence of notice before proceeding ex parte violated the Petitioners’ right to a full opportunity to present their case.

The award also failed the requirement of a reasoned award and imposed liability inconsistent with the guarantee and mortgage documents.

Accordingly, the Arbitration Petition was allowed, and the award dated 7 March 2022 was quashed and set aside. Any pending interim applications were disposed of as infructuous.