Parties Should Adhere To Arbitration Agreement Rather Than Attempting What They Perceive To Be Safer, Says Delhi HC [Read Judgment]

The proverb ‘better safe than sorry’ cannot be of universal application and the safe procedure for parties to an arbitration agreement is to actually adhere to the stipulation in the arbitration clause and not attempt anything which the parties may perceive to be safer, the Delhi High Court has held.

Justice Pratibha M Singh said so while setting aside an award passed by a three-member arbitral tribunal even as the agreement between the parties provided for appointment of a sole arbitrator.

In the instant case, petitioner Mother Boon Foods Pvt Ltd had filed the petition under Section 34 (2) of the Arbitration and Conciliation Act, 1996 challenging the arbitral award dated 15 July 2014, passed by a three-member tribunal.

The respondent, Mindscape One Marketing Pvt Ltd, a company engaged in manufacturing and marketing bread, entered into an agreement with the petitioner in July 2012. The petitioner was appointed to manufacture and package bread as per the requirements and specifications of the respondent. Commercial production commenced in July 2013 but disputes arose between the parties leading to termination of the agreement vide letter dated 14 March 2014.

Having failed to arrive at a settlement, the petitioner set out financial claims which were not accepted by the respondent.

The contract contemplated the appointment of a sole arbitrator by the respondent. It constituted a three-member tribunal, which issued notices to the parties on 16 April 2014.

The petitioner challenged the constitution of the tribunal and did not participate in the arbitration proceedings.

The tribunal went ahead to pass the award detailing the petitioner returning the equipment to the company and getting Rs 15.32 lakh as dues.

The petitioner then moved the high court challenging the constitution of the tribunal was fully chosen by the respondent and said the award passed by it was not sustainable.

The respondent claimed that it was the petitioner who insisted on the constitution of a three-member tribunal.

“A perusal of the arbitration clause reveals that the same contemplated the appointment, only of a Sole Arbitrator, by the Respondent. It is indeed strange as to how a three-member tribunal came to be constituted by the Respondent. The Respondent appears to have “played safe” in the words of the learned counsel for the Respondent. There is, however, nothing on record to show that the Petitioner indeed demanded the constitution of a three-member tribunal. It is nigh possible that the Respondent decided to adopt a fair attitude by appointing a three-member tribunal, however, if a three-member tribunal had to be appointed, then the same ought to have been done with the consent of the Petitioner and in accordance with the provisions of the Act,” said Justice Singh.

“The Petitioner may have been clever in orally demanding a three-member tribunal but it is clear that the procedure adopted by the Respondent is impermissible. The Petitioner had raised its objection at the initial stage itself to the constitution of the tribunal but the tribunal having proceeded further with the matter, the Petitioner is entitled to challenge the said constitution at this stage by raising its objections under Section 34,” she noted while setting aside the award of the tribunal.