Arbitrator Can’t Issue Further Directions In An Award Based On Settlement Without Proper ‘Adjudication’: Delhi HC [Read Judgment]

Such directions could be passed only by the process of adjudication after having concluded the mediation proceedings, the court said.

An arbitrator cannot issue further ‘directions’ in an award based on settlement, without hearing both the parties in a process of adjudication, the Delhi High Court has held in Surinder Kumar Beri vs. Deepak Beri.

In this case, during the course of arbitration, parties settled the disputes and entered into a Memorandum of Understanding, Settlement and Deed of Arrangement. The arbitrator recorded these settlements in the form of an award.

In the award, certain ‘directions’, which were not in the agreement between the parties, were issued by the arbitrator.  The ‘directions’ included the appointment of a team to examine the stock and other records and also for auditing financial statements.

“These directions may be an attempt to implement and put into effect the terms and conditions of the settlement but certainly cannot said to be a part of the settlement agreement,” Justice  Jayant Nath said while hearing the petition challenging the award.

The court observed that the provisions of Section 23 of the Arbitration Act that filing of a statement of claim and a statement of defence would normally be a mandatory procedure to be followed unless otherwise agreed upon by the parties. The court also noted that no such statement of claim/defence was sought for by the arbitrator. The bench further held that documents filed before the arbitrator and the emails sent to him cannot be the basis for adjudication of the dispute between the parties and passing of directions unless such a procedure is specifically agreed by the parties.

The bench further said: “It is clear that the directions which are passed by the learned Arbitrator are not contained in the agreement between the parties. No doubt these directions can be said to be an attempt by the learned Arbitrator to try and execute/implement the terms and conditions agreed upon by the parties. However, such directions could be passed only by the process of adjudication after having concluded the mediation proceedings. It appears that the learned arbitrator has mixed up the mediation process and the adjudicatory process based on the hearings which have been conducted and the exchange of emails by the parties. He has recorded a settlement, passed an award based on the settlement and has also passed further directions which could only have been passed pursuant to adjudication.”

Holding that such directions are contrary to the fundamental policy of Indian Law, the bench set those aside. However, the part of the award recording the settlement agreement was upheld.