Allahabad High Court Holds That Improper Notice Invalidates Ex-Parte Arbitral Award

The Allahabad High Court has held that improper notice of arbitration invalidates an arbitration award passed ex-parte.

The bench of Justice Rohit Ranjan Agarwal held that Section 14(2) of the Arbitration Act, 1940 requires that notice be given to the parties after the arbitrators or umpire have signed the award. Without proper notice, the court held that the proceedings leading to the judgment making the award rule of the court would be flawed.

Facts of the Case

The appellant, a Government of India undertaking, entered into an agreement in 1983 with Harindar Singh Chopra's ancillary unit for manufacturing fabricated items. The agreement included an arbitration clause, specifying the appointment of an arbitrator by the appellant in case of disputes.

Disputes arose in 1991, leading to a notice from respondent no. 1, a private limited company, for the appointment of an arbitrator. The respondent appointed Pandit Kashi Nath Tripathi (Advocate) as their arbitrator.

The appellant informed the respondent about the appointment of C.V. Subba Rao as the sole arbitrator, per the agreement. The respondent proceeded with Pandit Kashi Nath Tripathi as their arbitrator.

The arbitrator made an ex-parte award on 01.01.1992, directing the appellant to pay various sums. Respondent filed a reference application before a Civil Judge to make the arbitral award a rule of court, which was granted on 28.04.2003.

In 2004, the appellant learned about the award and decree and filed applications under Order 9 Rule 13 CPC, Section 47 CPC, and Sections 30 and 33 of the old Arbitration Act. The court below dismissed the applications, leading to the filing of Arbitration Appeals.

Submissions

The Appellant made the following submissions:

• The appellant vehemently argued that the arbitrator appointed by the respondent lacked the authority to arbitrate under the terms of the contract.
• The appellant asserted that proper notice was not served regarding the arbitration proceedings. This lack of notice, as per Section 14(2) of the Arbitration Act, rendered the entire arbitration process flawed.
• The appellant highlighted the expedited nature of the arbitration proceedings from 26.02.2003 to 28.04.2003. The appellant argued that this haste, coupled with lawyers being on strike on three specific dates during this period, compromised the fairness of the proceedings.

The respondent made the following submissions:

• The respondent contended that the executive of the appellant company had failed to exercise their authority in appointing an arbitrator, leading the respondent to take the initiative.
• The respondent refuted the appellant's claim of inadequate notice, asserting that all procedural requirements were duly fulfilled.
• The respondent justified the expedited proceedings by citing the urgency of resolving the dispute. They argued that the strike days were adequately accommodated, and the proceedings were conducted fairly.

Analysis by the Court

The court observed that the Arbitrator appointed by the respondent was not empowered under the agreement between the parties to act in that capacity. The agreement specifically provided that the Arbitrator was to be appointed by the executive of the appellant company, and not by the disputing parties. Therefore, the Arbitrator's jurisdiction was deemed illegal, rendering the award similarly invalid.

The court noted that the order-sheet of the case did not provide evidence of proper notice service to the appellant company. Section 14(2) of the old Arbitration Act requires that notice be given to the parties after the arbitrators or umpire have signed the award. Without proper notice, the court held that the proceedings leading to the judgment making the award rule of the court were flawed.

The court criticized the lower court's haste in proceeding from 26.02.2003 to 28.04.2003 without adequately addressing issues related to notice and other procedural matters. It highlighted that on three dates during this period, lawyers were on strike, raising concerns about the fairness of the proceedings.

The court emphasized the respondent's non-disclosure of the arbitration award during the pendency of the case before the court. The respondent had filed a writ petition seeking intervention by the court without revealing that an award had already been made in their favor. This non-disclosure was viewed as misleading and prejudicial to the appellant.

Case Title: Bharat Pumps and Compressors Limited vs. Chopra Fabricators & Manufacturers Pvt Ltd 2023 LiveLaw (AB) 479,  Appeal U/S 37 of the A&C Act No. 146 of 2022

Citation: 2023 LiveLaw (AB) 479

Counsel for the Appellant: Aarushi Khare, Sr. Advocate with Pradeep Kumar Sinha

Counsel for the Respondent: Rahul Mishra

Click Here To Read/Download Order