Supreme Court Sets Aside Awards Of Over Rs 46 Lakhs Passed Against UP Govt In Sham Arbitration Proceedings

The Supreme Court on Thursday (January 9) set aside two ex-parte arbitration awards on grounds of fraud played by the litigant who appointed sole arbitrators and conducted 'sham' arbitration proceedings in a service dispute against U.P. Government and Government Hospital where he was employed. 

The bench of CJI Sanjiv Khanna and Justice Sanjay Kumar was hearing an appeal by the State of Uttar Pradesh challenging the veracity of the ex parte awards and the arbitration agreement relied by the respondent on the basis of which such arbitration proceedings were conducted. 

Referring to the peculiar facts of the case, the Court held : 

"It is apparent that the arbitration proceedings were a mere sham and a fraud played by Respondent No.1, R.K. Pandey, by self-appointing/nominating arbitrators, who have passed ex-parte and invalid awards. To reiterate, Respondent No. 1, R.K. Pandey, is not a signatory to the purported arbitration agreement. Moreover, the parties thereto, DNPBID Hospital and the Governor of Uttar Pradesh, do not endorse any such agreement. From the cumulative facts and reasons elucidated above, this is a clear case of lack of subject matter jurisdiction." The Court observed." 

In terms of facts, the respondent no.1 namely RK Pandey was working as a Lab Assistant/ Technician in the T.B. Section of Dina Nath Parbati Bangla Infectious Disease (DBPBID) Hospital located at Kanpur.  The Municipal Board of Kanpur set up this hospital on the land given by the Kanpur Improvement Trust in 1944-45.

When in 1956, the Hospital was taken over by the State Government of UP, a transfer deed dated 20.6.1961 was executed between the Nagar Mahapalika of the City of Kanpur and the Governor of the State of Uttar Pradesh. In 1997, the Chief Medical Superintendent of the hospital, by a letter informed Pandey that he would be superannuating on 31.03.1997. 

A writ petition was then filed by Pandey before the High Court claiming that he should retire at the age of 60 years instead of 58 years, relying upon the service rules as applicable to the employees of the Municipal Board of Kanpur.  

The State Government opposed the claim stating that the minimum age for entering the government service is 18 years, and if a government servant retires at the age of 58 years, he would have completed 40 years of service. In the present case, R.K. Pandey had completed service of 42 years of service. In other words, he would be 60 years of age. The writ petition was then withdrawn by Pandey on 22.04.2009.

In 2008, Pandey filed an arbitration suit before the District Judge , relying upon an alleged arbitration agreement dated 01.04.1957 between the then Administrator of the DNBPID Hospital and the Governor of Uttar Pradesh. The prayer in the suit was regarding Pandey's age of superannuation and the rejection of his earlier representation to the Government authorities. This suit was also withdrawn on 15.02.2008 seeking to refer the disputes to arbitration. 

Subsequently, Pandey filed two execution petitions before the District Court seeking to enforce two separate ex parte awards issued on 15.02.2008 and 25.06.2008 by Advocates Pawan Kumar Tewari and Indivar Vajpayee. The first award allowed the claim of  Pandey for an amount of Rs.26,42,116/- with interest at the rate of 18 % per annum from 21.01.2008 against the State of Uttar Pradesh and the Principal GSVM Medical College, Kanpur. 

Notably, the award stated that Pandey had appointed/ nominated the Arbitrator and there was non-appointment by the opposite party and, therefore, Pawan Kumar Tewari, Advocate had acted as the sole Arbitrator. 

The second award decreed in favour Pandey an amount of Rs.20,00,000/- along with interest at the rate of 9% per annum with effect from 11.02.2008 , and against the opposite parties. Here again the award stated that since the opposite party had not appointed an arbitrator, Pandey appointed Indivar Vajpayee as sole arbitrator. 

The appellants opposing the execution petition, denied the authenticity of the arbitration agreement relied on by Pandey in its objections under S.34 of the Arbitration Act 1996. The Trial Court dismissed the objections for being barred by limitation and had been filed beyond the condonable period. 

The challenge to the dismissal was also rejected by the High Court on the grounds that the objections were barred by limitation and beyond the condonable period.

The Supreme Court presently held that the respondent Pandey had committed fraud on the authorities. It was because (1) the arbitration agreement was nowhere available on the records of either the Municipal Corporation or the State of Uttar Pradesh; (2) Pandey, did not file the original agreement since he was not in possession of the same, nor is he a signatory and party to the arbitration agreement; (3) The Arbitration Agreement is not referred to in the indenture of the transfer executed later on 20.06.1961; (4) There is no evidence to show the existence of the arbitration agreement, except a piece of paper, which is not even a certified copy or an authenticated copy of the official records and (5) there is lack of clarity as  to how and from where Pandey got a copy of the agreement, and that too nearly 10 years after his retirement and filing of a writ petition. 

The Court also noted that the unilateral appointment of arbitrator by Pandey was perhaps against the alleged arbitration agreement which states that "each party, that is, the Municipal and Development Board, Kanpur, and the Governor of Uttar Pradesh, may nominate an arbitrator for adjudication by giving written notice to the other party. In the event the other party fails to nominate an arbitrator within ten days, the arbitrator nominated by the first party shall act as the sole arbitrator". 

The Court observed : "It was not the case of Respondent No. 1, R.K. Pandey that the Municipal and Development Board, Kanpur, or the Governor of Uttar Pradesh has invoked the arbitration clause. The unilateral appointment of the arbitrator by Respondent No. 1, R.K. Pandey is, therefore, contrary to the arbitration clause as propounded by him." 

The Court placed reliance on the recent decision in Central Organisation of Railway Electrification v. ECI PIC SMO MCPL (JV), a Joint Venture Company which held that a clause that allows one party to unilaterally appoint a sole arbitrator gives rise to justifiable doubts as to the independence and impartiality of the arbitrator. Further, such a unilateral clause is exclusive and hinders equal participation of the parties in the appointment process of arbitrators. 

"This judgment also observed that the unilateral appointment of arbitrators has a direct effect on the conduct of arbitral proceedings. Arbitration, which is quasi-judicial, requires a standard of behaviour of arbitrators, which is impartial and independent, no less stringent than that demanded of judges. In fact, arbitrators are expected to uphold a higher standard, as court decisions are subject to the collective scrutiny of an appeal, while an arbitration award typically enjoys greater acceptability, recognition, and enforceability."

Concluding that the arbitration agreement was unreliable and proceedings sham, the Court set aside the ex-parte awards as null and void and also dismissed the execution proceedings. The impugned judgement was also set aside. In doing so, the Court also cited the decision in Bilkis Yakub Rasool v. Union of India and Others where the Court held that fraud and justice never dwell together, and a litigant should not be able to benefit from a fraud practiced with an intention to secure him an illegal benefit.

"It is apparent that the arbitration proceedings were a mere sham and a fraud played by Respondent No.1, R.K. Pandey, by self-appointing/nominating arbitrators, who have passed ex-parte and invalid awards. To reiterate, Respondent No. 1, R.K. Pandey, is not a signatory to the purported arbitration agreement. Moreover, the parties thereto, DNPBID Hospital and the Governor of Uttar Pradesh, do not endorse any such agreement. From the cumulative facts and reasons elucidated above, this is a clear case of lack of subject matter jurisdiction." The Court observed. 

Case Details : STATE OF UTTAR PRADESH AND ANOTHER  VERSUS R.K. PANDEY AND ANOTHER | CIVIL APPEAL NO. 10212 OF 2014

Citation : 2025 LiveLaw (SC) 45

Click here to read the judgment