Award Passed By Ineligible Arbitrator Can Be Set Aside U/S 34 Of Arbitration Act: Jammu And Kashmir HC

Brief Facts

The present petition has been filed under section 34 of the Arbitration Act against an award passed by the Arbitrator by which the claimant has been has been held entitled to recover an amount of Rs.25,20,969/ along with interest @8% per annum.

Petitioners started purchasing automotive accessories from the respondent company. It has been claimed that without the authorization of the petitioner company, its previous General Manager entered into an agreement on behalf of the petitioner company with the respondent company on 13th June, 2018.

The agreement was valid for a period of two years from 1st October, 2017. According to the petitioners, the petitioner company continued to purchase the automotive accessories from the respondent company upto the year 2021. However, when the company did not make any profit on the goods and services supplied by the respondent company, they stopped doing business with it.

Contentions:

The petitioner submitted that the impugned award has been passed by respondent No.2 in exparte without any authority or jurisdiction.

It was further argued that agreement dated 13th June, 2018, which contains the arbitration clause, has not been validly executed by the petitioner company, inasmuch as it has not been executed by an authorized person.

It was further submitted that as per Clause (16) of the said agreement, the disputes were required to be referred to the sole Arbitrator mutually agreed upon by the parties or appointed by the Court under Arbitration and Conciliation Act, 1996 and that the venue of arbitration would be at Srinagar, but in the instant case, respondent No.1 has unilaterally appointed respondent No.2 as the Arbitrator and the arbitration proceedings have been conducted at Greater Noida (UP).

Per contra, the respondent submitted that agreement dated 13.06.2018 was executed by the General Manager of the petitioner company and there is nothing on record to show that he was not having authorization to do so.

It was also argued that the petitioner company failed to clear the past dues, as a result of which the respondent company issued a legal notice of demand dated 31.08.2021 upon the petitioner company seeking recovery of any amount of Rs.25,20,969/ from it but in spite of receipt of the said notice, the petitioner company did not clear the outstanding dues.

Finally, it was submitted that not only the notices issued by respondent No.1 to the petitioner company and the invocation letter were served upon the petitioner company but even the communications addressed by the Arbitrator to the petitioner company were duly received by it but the petitioner company failed to respond to the same. Therefore, the petitioners cannot now turn around and raise any grievance against the impugned award.

Observations:

The court after referring to section 34 of the Arbitration Act observed that “an application for setting aside of award passed by an Arbitral Tribunal can succeed if it is established that a party was under some incapacity or the arbitration agreement is not valid, or the party making the application was not given a proper notice of appointment of Arbitrator or of the arbitral proceedings, or the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration.”

“ or it contains decisions on matters not submitted to arbitration or the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties. An arbitral award can also be set aside if the Court finds that the subject matter of the dispute is not capable of settlement by the arbitration or the arbitral award is in conflict with public policy of India.”

While keeping the above position of law in mind, the court noted that in the present case, the agreement on behalf of the petitioner company has been signed by the General Manager only. Even if we interpret the 'internal controller' who is a permitted assign, to mean 'General Manager' of the petitioner company, still then one more assign had to put his signatures on the agreement, which is not the case here. Thus, the contention of learned counsel for the petitioners that agreement dated 13.06.2018 has not been signed by a proper authority on behalf of the petitioners, appears to be well founded.

It further added that from the material on record, it is clear that the petitioner continued purchasing automative accessories from the respondent till September, 2021 which means that by their act of entering into the transactions in all these years with the respondent they had ratified the acts of the Manager even though he was not authorised to sign therefore they cannot be allowed to argue that they are not bound by the terms of the agreement.

The court also noted that it is not a case where respondent No.1 had sought consent from the petitioner company about the appointment of a particular person as an Arbitrator before appointing the Arbitrator but it is a case where the respondent company has unilaterally appointed respondent No.2 as an Arbitrator and informed the petitioner to participate in the arbitration proceedings.

“Everything has been done by respondent No.1 unilaterally without seeking prior consent of the petitioners. This is in gross violation of the terms of Clause (16) of the agreement (supra). Thus, respondent No.2, having not been appointed as an Arbitrator in accordance with the terms of Clause (16) of agreement dated 13.06.2018, was ineligible to enter upon the reference and pass the impugned award.” , the court observed.

The court while rejecting the argument of the respondent that the petitioners were sent multiple notices to participate in the arbitration proceedings but they did not give any response thereby waiving their right to object, observed that “once an Arbitrator is held to be disabled or ineligible to act, it is not even necessary to examine the question whether the party in disagreement with the appointment had raised any objection to his appointment even if such a party had participated in the arbitral proceedings.”

It also opined that the arbitral proceedings in the instant case were conducted at Greater Noida (UP) whereas, in terms of Clauses (16) and (18) of agreement dated 13.06.2018, the proceedings were to be conducted at Srinagar only and the Courts other than the Courts at Srinagar were excluded from exercising their jurisdiction in respect of the disputes between the parties.

Accordingly, the impugned award was set aside.

Case Title: JAMKASH VEHICLEADS KASHMIR PVT LIMITED & ANR Vs. M/S WUERTH INDIA PVT. LTD. & ANR

Citation: 2024 LiveLaw (JKL) 346

Case Number: Arb P. No.30/2023

Judgment Date: 20/12/2024

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