Personal Hearings Not Always Necessary For Arbitrator Appointment If Pleadings Are Complete: Bombay High Court

The bench held that when an arbitration agreement is clearly established in the pleadings and the dispute is not evidently stale or time-barred, it is unnecessary to delay the consideration of an application under Section 11. It noted that if the pleadings are complete and all relevant issues are adequately documented, the application should be considered without requiring additional personal hearings.

Brief Facts:

The matter pertained to an Interim Application filed by Universal Builders (Original Respondent) seeking the review or recall of an order dated June 20, 2024 (Subject Order). This order appointed a Sole Arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996, to resolve disputes arising from a Work Contract Agreement. The application was submitted after arbitration proceedings had commenced before the appointed Arbitrator. The Original Respondent argued that its participation in the preliminary meeting was made without prejudice to its right to file and pursue the application.

The application was listed on multiple dates. An affidavit in reply dated January 16, 2024, was filed by the Original Respondent. On June 20, 2024, the matter was reviewed in the absence of representation for the Original Respondent. The High Court, having reviewed the Arbitration Application and the Reply Affidavit, allowed Vascon Engineers Limited (Original Applicant) to submit a short note addressing objections raised by the Original Respondent. The High Court planned to decide whether to defer the matter for further hearing or proceed based on the existing record. A written note on submissions was filed on June 24, 2024 which lead to the passing of the Subject Order on June 25, 2024 that appointed the Arbitrator.

The Interim Application filed by Original Respondent challenged the Subject Order seeking either its recall and setting aside or, alternatively, its review. The Original Respondent requested a stay of the arbitral proceedings pending the disposal of this application. The Original Applicant argued that the court lacked jurisdiction to review an order under Section 11 of the Arbitration Act. Conversely, the Original Respondent contended that the court has inherent power to recall the Subject Order and argued that the arbitration proceedings were barred by limitation and that its representation was inadequate.

The Original Respondent argued that its lack of representation on the hearing date led to an adverse order that could have been avoided if it had been allowed to present oral arguments. It claimed this constitutes a denial of natural justice. The Original Respondent acknowledged that while its advocate's name was listed for the June 20, 2024, hearing, no email or SMS notification was received about the listing which contrasted with the notifications received by the Original Applicant's advocates.

In opposition, the Original Applicant argued that a review of an order under Section 11 of the Arbitration Act is not permissible and that the Original Respondent failed to make a case for recalling the Subject Order.

Observations by the High Court:

The High Court noted that the Subject Order adequately addressed the arguments and submissions made by the parties and dealt with the objections raised by the Original Respondent. These objections included claims that the dispute was barred by limitation and that the Agreement was not properly stamped. The Order addressed these issues and left the substantive merits of the case for the Arbitral Tribunal to resolve. Given this, the High held that the objections to the Arbitral Tribunal's appointment laced merit.

The request to recall the Subject Order was based on the argument that it imposes extensive and time-consuming arbitration proceedings on the Original Respondent. The High Court noted that the objections raised by the Original Respondent—primarily that the claims were barred by limitation and that the Agreement was inadequately stamped—are no longer tenable. The Supreme Court's judgment in the case of Interplay between Arbitration Agreements under the Arbitration and Conciliation Act, 1996 and the Indian Stamp Act, 1899 clarified that an arbitration agreement's validity is not necessarily affected by insufficient stamping. The Subject Order also explicitly left the issue of inadequate stamping for the Arbitral Tribunal to address.

The High Court noted that the Curative Arbitration Judgment underscores that a Section 11 Court's role is limited to determining whether an arbitrator should be appointed, without conducting a full trial of facts. If a claim appears to be obviously time-barred from the material on record, the High Court held that the court may refrain from appointing an arbitrator. However, the High Court noted that the Original Respondent has not provided evidence that convincingly show the claim was time-barred.

The High Court referred to Elfit Arabia & Anr. Vs. Concept Hotel Barons Limited & Ors. where it was held that Section 11 Court should not reject claims that are not evidently time-barred or non-arbitrable at the stage. The High Court held that the claims in the case didn't appear to be manifestly stale or barred by limitation, especially considering the suspension of limitation periods due to the pandemic.

The High Court also held that the absence of the Original Respondent's advocate during the proceedings does not invalidate the consideration of its submissions. It held that the Subject Order focused on the appointment of an arbitrator and did not adjudicate the merits of the case which remains the responsibility of the Arbitral Tribunal.

The High Court referred to the decision of the Supreme Court in Asit Kumar Kar v/s. State of West Bengal & Ors., (2009) 2 SCC 703 which involved a situation where a party challenged a Supreme Court order that had canceled licenses without a hearing. The Supreme Court acknowledged a breach of natural justice which led to the recall of the order. However, the High Court noted that such principles were not applicable in the case as it didn't involve an adverse determination against the Original Respondent. Unlike Asit Kumar Kar, where there was a clear procedural error affecting the party's rights, the High Court held that the case pertained to an arbitration agreement's enforcement and the related procedural considerations.

The High Court found that the Original Respondent's objections to participating in arbitration, based on claims of significant adverse impact, were unfounded. The High Court held that the Original Respondent willingly entered into a binding arbitration agreement and should not view the direction to participate in arbitration as unduly burdensome.

The High Court then addressed the recent Supreme Court clarifications on the role of the Section 11 Court in handling claims of limitation. The Supreme Court, in its decision in SBI General Insurance Co. Ltd. Vs. Krish Spinning, reiterated that the Section 11 Court should primarily verify whether the application under Section 11(6) of the Arbitration Act was filed within the three-year limitation period. Any detailed examination of the merits or time-barred nature of claims is to be deferred to the Arbitral Tribunal.

In this context, the High Court held that there was no error in the prima facie assessment of facts or any material misinterpretation in the Subject Order. The High Court found that the Interim Application, which sought to challenge the arbitration proceedings, lacked merit and thus disallowed it.

The High Court also expressed that while it is generally reluctant to dispose of matters ex-parte, the significant delays often associated with Section 11 applications warrant a more expedient approach when the arbitration agreement and dispute are evident from the records. The High Court held that ensuring timely arbitration is crucial, particularly in commercial disputes, and that all substantive issues, including those related to limitation, should be addressed by the Arbitral Tribunal.

Case Title: Universal Builders In the matter between : Vascon Engineers Limited Versus Universal Builders

Case Number: INTERIM APPLICATION (LODG.) NO. 23757 OF 2024 IN COMM. ARBITRATION APPLICATION (L.) NO. 17767 OF 2023

Mr. Prateek Pai a/w. Pratik Karande, for Applicant/Original Respondent in IAL-23757 of 2024.

Mr. Aditya Mehta a/w. Anuj Jhaveri and Mihir Modi i/b Mihir Modi, for Applicant.

Date of Judgment: August 27, 2024

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