Delhi High Court Sets Aside Arbitration Award Passed In Defiance Of Supreme Court Order

The bench of Justices Sanjeev Sachdeva and Manoj Jain held that when the Supreme Court grants liberty to a party, to file an application before the arbitral tribunal to take its statement of defence and counter-claim on record within a specified time, the tribunal ought to wait till the expiry of the said period before passing the award without taking the statement of defence and counter-claim on record.

The Court held that if the arbitral tribunal without waiting for the expiry of the period granted by the Apex Court, the same would result in denying the party an opportunity to present its case and the award would fall foul of Section 34(2)(iii) of the A&C Act. It held that indeed the it would be the discretion of the tribunal to allow or disallow the application on its own merits, however, the tribunal cannot proceed before the period of liberty granted by the Supreme Court expires.

The Court also remarked that Judicial propriety, dignity and decorum demands that even an obiter dictum, or pronouncements and observations of the Supreme Court that do not strictly constitute the ratio of a judgment delivered by the Supreme Court of India, although not strictly binding, ought to be accepted as binding by courts subordinate to the Supreme Court.

Facts

The parties entered into an agreement in the year 2011. In terms of the agreement, the respondent was to carry out interior works at the Hotels owned by the appellant. The agreement provided for resolution of dispute through arbitration.

A dispute arose between the parties. Accordingly, the Court appointed the arbitrator. None of the parties appeared before the tribunal on the date fixed for preliminary hearing. Resultantly, the tribunal issued a notice to the respondent to file its claim. A follow up letter was also issued wherein it was stated that if the respondent does not file its statement of claims within a period of 15 days, the tribunal would deem that it is not interested in continuing the arbitration. Nevertheless, the respondent failed to file its statement within the grace period. However, it belatedly filed the statement of claim. The tribunal took that on record and directed the appellant to file its defence statement and counter-claims, if any.

However, the appellant requested the tribunal to furnish information as regards the previous correspondence and communications between the tribunal and the respondent to understand and know that why the claim of the respondent has been entertained despite the belated filing. The tribunal did not accede to the request but granted the appellant an additional 30 days period to file its statement. On failure of the appellant to file its defence statement within this period, the tribunal closed its right to file the defence statement. The order was challenge before the High Court, however, the court dismissed the challenge by observing that such a challenge is only permissible once an award is made. Against the order of the High Court, the appellant preferred an SLP.

The Apex Court vide order dated 27.04.2015 ordered that the appellant be allowed to make an application before the tribunal to allow it to file its defence statement within a period of 3 weeks. The order was communicated to the tribunal on the same date. On the very next day, the tribunal held the next hearing, the appellant failed to attend it, the tribunal, taking into account the previous conduct of the appellant, closed the right of the appellant to file defence statement or to cross-examine the respondent’s witness. The award was passed 08.05.2015. However, the appellant filed the application within the 3 weeks period, however, by that time the award was already made and the tribunal had become functus officio.

Aggrieved by the award, the appellant challenged it under Section 34 of the A&C Act, however, the challenge was unsuccessful. Accordingly, the appellant filed the appeal under Section 37 of the Act.

Grounds of Appeal

The appellant challenged the order on the following grounds:

• The award is liable to be set aside as it was made in haste and the appellant was not given an opportunity to present its case.
• The tribunal passed the award in complete defiance of the liberty granted by the Supreme Court to the respondent. Therefore, the award is liable to be set aside.
• The tribunal should have waited till the expiry of the 3 weeks period granted by the Supreme Court and no award could have been passed in that period.

Analysis by the Court

The Court observed that the Apex Court vide order dated 27.04.2015 ordered that the appellant be allowed to make an application before the tribunal to allow it to file its defence statement within a period of 3 weeks. The order was communicated to the tribunal on the same date. However, the tribunal did not wait till the expiry of the said period to allow the appellant to make an application, rather it choose to pass an award within this period.

The Court held that when the Supreme Court grants liberty to a party, to file an application before the arbitral tribunal to take its statement of defence and counter-claim on record within a specified time, the tribunal ought to wait till the expiry of the said period before passing the award without taking the statement of defence and counter-claim on record.

The Court held that if the arbitral tribunal without waiting for the expiry of the period granted by the Apex Court, the same would result in denying the party an opportunity to present its case and the award would fall foul of Section 34(2)(iii) of the A&C Act. It held that indeed the it would be the discretion of the tribunal to allow or disallow the application on its own merits, however, the tribunal cannot proceed before the period of liberty granted by the Supreme Court expires.

The Court also remarked that Judicial propriety, dignity and decorum demands that even an obiter dictum, or pronouncements and observations of the Supreme Court that do not strictly constitute the ratio of a judgment delivered by the Supreme Court of India, although not strictly binding, ought to be accepted as binding by courts subordinate to the Supreme Court.

The Court held that the award is clearly against the public policy, being in defiance of the order of the Supreme Court. It held that the appellant was prevented from presenting its case, therefore, the award is also liable to be set aside under Section 34(2)(iii) of the Act.

Case Title: Unison Hotel v. Value Line Interiors

Citation: 2023 LiveLaw (Del) 1051

Date: 30.10.2023

Counsel for the Appellant: Mr. Sanjeev Sindhwani, Sr. Advocate with Mr. Aseem Chaturvedi and Mr. Shivank Diddi, Advocates.

Counsel for the Respondent: Mr. Sameer Rohatgi, Mr. Namit Suri, Ms. Purnima Singh, Mr. K. Singh and Mr. Arjun Kaushal, Advocates.

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