Arbitral Award Set Aside for Violation of Section 18 Due to Unfair Closure of Evidence Rights

The appellant, Indore Sahkari Dugdh Sangh, issued a tender in 2012 for the construction of a dairy plant, which was awarded to Respondent No. 1.

Disputes arose regarding the reimbursement of service tax, delayed payments, and the imposition of liquidated damages due to the project finishing three years past the deadline.

Respondent No. 1 invoked arbitration under Clause 68 of the tender conditions.

During the arbitral proceedings, the Sole Arbitrator closed the appellant's right to lead evidence on June 29, 2021, because the filed affidavits were not notarized.

The Arbitrator rejected a subsequent application to file notarized affidavits the following day.

On July 16, 2021, the Arbitrator passed an award in favor of the respondent for ₹1,97,78,235/-.

The appellant challenged this under Section 34 of the Arbitration and Conciliation Act, 1996, before the Commercial Court, Ahmedabad, which dismissed the application on March 2, 2023.

The appellant then preferred this appeal under Section 37.

1. Whether the Arbitral Award is vitiated by a violation of the principles of natural justice (audi alteram partem) and Section 18 of the Act due to the premature closure of the appellant's right to lead evidence.

2. Whether the Commercial Court at Ahmedabad had jurisdiction to entertain the Section 34 application given the location of arbitral sittings at Indore.

Section 18 of the Arbitration and Conciliation Act, 1996, which mandates that parties be treated with equality and given a full opportunity to present their case.

Section 34(2)(a)(iii) of the Arbitration and Conciliation Act, 1996, allowing for the setting aside of an award if a party was unable to present its case.

The doctrine derived from Vidya Drolia v. Durga Trading Corporation (2021) regarding the scope of "second look" judicial review.

The principle from Narinder Singh and Sons v. Union of India (2022) that unnecessary haste by an arbitrator resulting in the exclusion of evidence constitutes a violation of natural justice.

While the Arbitrator acknowledged the Supreme Court’s extension of limitation periods in Suo Motu Writ Petition No. 3 of 2020, he nevertheless closed the appellant's right to lead evidence on June 29, 2021, because the affidavits were not notarized.

The Court noted that the Arbitrator himself admitted he had at least nine months of remaining limitation to pass the award, yet he refused to accept notarized affidavits filed just one day later on June 30, 2021.

The Court characterized the Arbitrator’s refusal as showing "volatility and lack of even temperament".

By applying the principle from Narinder Singh, the Court reasoned that the Arbitrator's "unnecessary haste and hurry" during a global pandemic deprived the appellant of a fair opportunity to establish its case, thereby violating the equal treatment mandate of Section 18.

The Court allowed the appeal and quashed both the Commercial Court's order dated March 2, 2023, and the Arbitral Award dated July 16, 2021.

The parties were granted liberty to initiate fresh arbitration or court proceedings within four weeks, with the time spent in the previous round of arbitration excluded for limitation purposes under the Limitation Act, 1963.