Baseless Allegations Against Arbitrators Must Be Dealt With Strictly, Arbitral Tribunals Can Hold Party In Contempt: Delhi High Court

Factual Background:

The contempt petition arose out of the order dated 05.10.2021, passed by the Sole Arbitrator, Justice Swatanter Kumar (Retd.). The order was passed by the Arbitrator in arbitration proceedings between Dalmia Group (Petitioners) and ATS Group (Respondents). Dalmia Group alleged that the ATS Group failed to repay investments made under various agreements. The parties entered into a supplementary agreement on 18.10.2019, in which ATS admitted to its liabilities.

ATS filed petitions under Section 11 of the Act to constitute an arbitral tribunal. By the order dated 08.01.2021, the Arbitrator was appointed to adjudicate the disputes. During the proceedings on 10.06.2021, ATS alleged a conflict of interest against the Arbitrator. ATS relied upon a legal notice to seek recusal of the Arbitrator.

On 14.06.2021, ATS Group and Respondent No. 1 (Promoter/Director of ATS Group) filed applications under Sections 14(2) r/w 12(5), 15 and 11(6) of the Act before the court. These applications were withdrawn with liberty to approach the Arbitrator. ATS Group and Respondent No. 1 filed applications under sections 12 and 13 of the Act before the Arbitrator to seek recusal of the Arbitrator.

The Arbitrator, by its order dated 05.10.2021 rejected all the challenges to the Arbitrator's impartiality and independence and held the allegations to be frivolous, vexatious, incorrect and a delaying tactic. The Arbitrator took severe umbrage to the conduct of the Respondents during the arbitral proceedings.

The Arbitrator invoked Section 27(5) for initiating criminal contempt against the Respondents. The Arbitrator made representations that the Respondents had made statements, which to their personal knowledge were incorrect, and had tampered with documents and produced them as evidence before the Tribunal in collusion with each other. The Arbitrator stated that the Respondents committed offences punishable under sections 195 to 197 of the Indian Penal Code, 1861 read with Section 340 of the Code of Criminal Procedure, 1973.

The court directed the Respondents to apologize to the Arbitrator. The arbitrator accepted the apologies on behalf of Respondent No. 2 and 3 but did not accept the apology from Respondent No. 1 as the Arbitrator deemed it insincere and opportunistic.

Arguments:

Mr. Siddhant Kumar (Counsel for the Petitioners) argued that the Respondents intended to ensure recusal or removal of the Arbitrator through baseless allegations and delay proceedings. The counsel for Petitioners relied on sections 17(2) and 27(5) of the Act to argue that the Arbitrator's powers are same as that of a Civil Court. The Arbitral Tribunal can initiate contempt proceedings. Reliance was placed on Alka Chandewar v. Shamshul Ishrar Khan to argue that after the insertion of section 17(2) by the Amendment Act of 2015, the Arbitral Tribunal was not needed to even apply to the High Court for contempt of its orders.

Mr. Sandeep Sethi, ld. Senior Counsel for the Respondents submitted that the Respondents intended to seek recusal to be on the safer side. Respondents' counsel further submitted that the Arbitrator had accepted the apology of Respondent Nos. 2 and 3 and that Respondent No. 1 had tendered an unqualified apology in respect of his conduct before the Arbitrator and before the Court.

Observations:

The first thing that struck and puzzled the court was that ATS Group, who was allegedly responsible for the conflict (due to work that the Arbitrator or his family had done for the ATS Group) sought recusal of the Arbitrator, instead of the opposing party, i.e., the Petitioners.

The court observed that in the present system of adjudication of disputes, indubitably the Tribunals and Arbitrators were adjudicating disputes in place of Civil Courts. The court also observed that making baseless and untenable allegations against the Arbitrators cannot be permitted. Such speculation should not result in recusal unless there is actual conflict. Reckless or baseless allegations must be dealt with strictly. While the integrity of arbitration needs to be maintained, the same cannot be made fragile by giving room to unsubstantiated or speculative allegations against arbitrators. Such allegations would constitute interference in the arbitral process.

The court held that the Respondent's conduct was reprehensible. Under such circumstances, the arbitrator cannot be rendered powerless.

The court referred to Alka Chandewar, which held that the purpose of amending section 17 was to make sure that orders passed by arbitral tribunals were not toothless and could be enforced. The Supreme Court had observed that section 27(5) is not confined to a person who is guilty of contempt only when failing to attend in accordance with such process. The section clearly states that persons guilty of any contempt to the Arbitral Tribunal during the conduct of the arbitral proceedings are within its ken.

The court held that section 27(5) provides that if any person is guilty of contempt of the Arbitral Tribunal during arbitral proceedings, the punishments would be as though the said offences had taken place in suits before the Civil Court.

The court observed that:

“The Arbitral Tribunal is no different from a Civil Court in respect of dealing with contempt against itself. Thus, any misconduct before an Arbitral Tribunal or a Sole Arbitrator would be liable to be dealt with in accordance with law, if the same constitutes civil law contempt.”

The court accepted the apology of Respondent No. 1. It directed Respondent No. 1 to pay Rs.10 lakh to any charitable organization and Rs. 3 lakh to Petitioners towards costs incurred.

Case Title: Dalmia Family Office Trust & Anr. vs. Getamber Anand & Ors.

Case Number: CONT.CAS.(CRL) 5/2021

Counsel for Petitioners: Mr. Ajay Bhargava, Mr. Siddhant Kumar, Ms. Wamika Trehan, Ms. Radhika Khanna and Mr. Varun Chopra Advocates.

Counsel for Respondents: Mr. Sandeep Sethi, Sr. Advocate with Mr. Krish Kalra, Mr. Kashish Bansal and Ms. Riya Kumar, Advocates and Mr. Getamber Anand, Respondent No.1 in person.

Date of Decision: 08.10.2024

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