Arbitrator Cannot Delegate The Task Of Quantifying The Amount Of Award To A Chartered Accountant: Calcutta High Court

The Bench of Justice Shekhar B. Saraf held that an arbitral award wherein the arbitrator failed to determine the amount of award and delegated that function to a third party cannot be sustained in the eyes of law. The Court remarked that an arbitrator cannot shun away from its duty and delegate an important function to a third party.

The Court reiterated that an arbitrator cannot delegate its functions except for 'ministerial acts'.

Facts

The parties entered into an agreement, consequently, several purchase orders were issued during 2010-14. In terms of the agreement, the petitioner was to release the payment to the respondent within 30 days from the receipt of notice/bills. A dispute arose between the parties when allegedly the petitioner delayed in making the payment to the respondent.

Consequently, the respondent referred the dispute to the MSME Council under Section 18 of the Act. After the failure of conciliation proceedings, the parties were referred to arbitration. The arbitrator passed an award in favour of the respondent and directed the quantum to be determined by a Chartered Accountant.

The petitioner filed an application for a stay on the arbitral award which was allowed by the Court subject to the deposit of Rs. 25,00,000/- with the Court. Thereafter, the petitioner challenged the award under Section 34 of the Act.

Contention of the Parties

The petitioner challenged the award on the following grounds:

• The MSME Council had no jurisdiction to adjudicate the dispute between the parties as the respondent is not an MSME and only one unit of the respondent was a registered MSME and admittedly, no transaction ever happened with that unit.
• Next, the annual turnover of the respondent is in excess of Rs. 200 Crores, therefore, it was not an MSME. Consequently, the MSME Council erred in entertaining the reference filed by the respondent. Further, even that unit was not registered as MSME on the date of contract, therefore, no benefit of MSMED Act can be extended to the respondent.
• The arbitral award is liable to be set aside as the tribunal has not provided any reason for arriving at the conclusion.
• The award is also liable to be set aside as the arbitrator has not applied its mind to the dispute and delegated its function to a third party and the same is impermissible under the Act.
• There is no requirement to deposit 75% awarded amount as the decision of the arbitrator has failed to determine the amount to be paid by the petitioner, therefore, the decision does not qualify as award.

The respondent objected to the maintainability of the petition on the following grounds:

• The petition is barred by limitation not having been filed within the statutory period given under the Act.
• The petitioner has not complied with the mandatory requirement of depositing 75% of the awarded amount as a pre-condition to the challenge to the award, therefore, the petition is liable to be dismissed on that count.
• The petitioner had, by concealing material facts, obtained a stay on the award subject to deposit of Rs. 25 Lakhs, however, the same amount is much less than 75% of the awarded amount.
• The arbitrator had allowed the interest on delayed payment as provided under the MSMED Act and directed the respondent to place before the petitioner the amount of interest duly certified by the Chartered Accountant.

Analysis by the Court

The Court held that the petition was filed after the expiry of 90 days period provided under Section 34(3) of the A&C Act, however, it is within the 30 days grace period, accordingly, the Court condoned the delay.

Next, the Court considered the issue of registration of the respondent with the MSME Council. The respondent had, before the arbitral tribunal, produced a certificate to show its registration. However, the respondent failed to supply the same to the Court despite repeated request. The Court held that the issue on non-registration goes to the root of the matter and the non-supply of the registration certificate by the respondent casts a reasonable doubt and adverse impression in the mind of the Court.

The Court rejected the argument of the respondent regarding non-compliance with Section 19 of the MSMED Act. The Court held that as the arbitral award does not mention any amount, therefore, the Court, to keep the soul and spirit of the section alive, had directed the petitioner to deposit Rs. 25 Lakhs.

The Court then considered the issue of delegation of power to determine the quantum of amount to the Chartered Accountant. The Court held that the arbitrator had accepted the claim of the petitioner and left it completely upon them to get the claim quantified by a chartered accountant and ordered the petitioner to pay such amount as may be claimed.

The Court held that such a delegation of power by the arbitrator is impressible as it violates the principles of natural justice and vitiates the arbitral award. It observed that by deciding to resolve their dispute by arbitration, the parties place their confidence in the arbitrator and the arbitrator cannot shun away from its responsibility and leave the whole part of deciding the quantum of amount to be decided by a third party including a chartered accountant.

The Court further held that the arbitrator, passed the arbitral award without making any effort to quantify the interest claimed or even the date from which that interest will apply is incomprehensible to a reasoned mind, therefore, the same is in teeth of Section 31(3) of the Act.

Accordingly, the Court set aside the arbitral award and directed the registrar to return the Rs. 25 Lakhs deposited by the petitioner.

Case Title: Usha Martin Limited v. Eastern Gases Limited, AP 486/2017

Date: 27.09.2022

Citation: 2022 LiveLaw (Cal) 315 

Counsel for the Petitioner: Mr. Rudraman Bhattacharyya, Adv. Mr. Souvik Kundu, Ad

Counsel for the Respondent: Mr. Jatinder Singh Dhatt Adv.

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