Arbitrator Must Serve Sufficient Notice Before Proceeding Ex-Parte Against Party: Delhi High Court

The bench of Justice Chandra Dhari Singh held that under the Arbitration and Conciliation Act, 1996 (A&C Act), it has always been preferred and encouraged that an Arbitrator provides a pre-emptory notice to any party against whom it is seeking to proceed ex-parte, even though the same has not been stipulated under the A&C Act in clear terms.

The Court further remarked that the fact that a Suit pertaining to the same issue was pending between the parties, was a sufficient cause for the Arbitrator not to proceed ex-parte against the award debtor after giving it only one intimation and opportunity to appear for the arbitral proceedings.

A Gas Sale Agreement was executed between the petitioner, M/s Mittal Pigments Pvt Ltd, and the respondent, M/s GAIL Gas Ltd. After certain disputes arose between the parties under the Agreement, GAIL invoked the Arbitration Clause contained in the Agreement and an ex-parte Arbitral Award was passed in favour of the respondent.

The petitioner/ award debtor, Mittal Pigments, challenged the ex-parte Award by filing a petition under Section 34 of the A&C Act before the Delhi High Court.

Mittal Pigments, submitted before the High Court that sufficient notice was not served upon it before the arbitral proceedings were proceeded against it ex-parte. It argued that the Arbitrator made no attempt to serve it with a Show Cause Notice or any other pre-emptory notice/order before proceeding ex-parte against it.

It further contended that the Arbitrator passed an unreasoned order, summarily allowing the claims of the respondent, GAIL, without sufficient cause or elaborate analysis.

Referring to the facts of the case, the bench observed that the petitioner, in its reply to the arbitration notice, had intimated the respondent, GAIL, that it had initiated proceedings against GAIL in the District Court in Rajasthan and, therefore, the petitioner could not participate in the arbitral proceedings.

The Court took note that the petitioner had received a notice from the Arbitrator only once, calling upon it to appear for the arbitral proceedings, before the Arbitrator proceeded ex-parte against it.

The petitioner, Mittal Pigments, pleaded before the High Court that since proceedings against GAIL pertaining to the said dispute, were already pending before the District Court, which was also in the knowledge of GAIL, the arbitral proceedings ought not to have been initiated or continued.

The Court noted that Section 25 of the A&C Act grants powers to the Arbitrator to terminate the arbitral proceedings, forfeit the right of defence, and proceed ex-parte against a party in specified cases. Section 25(c) provides that an Arbitrator may continue the proceedings and make the arbitral award on the evidence before it, where a party fails to appear at an oral hearing or fails to produce documentary evidence, without showing sufficient cause, unless otherwise is decided amongst the parties.

The bench observed that since the petitioner chose not to appear before the Arbitrator, the present case fell within the ambit of Section 25(c) of the A&C Act.

The Court however added that before taking an action in accordance with Section 25(c), the Arbitrator is required to examine whether the absence of the parties is with or without showing sufficient cause. Therefore, it is evident that an opportunity is to be given to a party to the dispute before the Arbitrator decides to proceed ex-parte on the basis of the evidence before it, the Court ruled.

The bench concluded that it is abundantly clear that under the A&C Act, it has always been preferred and encouraged that an Arbitrator provides a pre-emptory notice to any party against whom it is seeking to proceed ex-parte, even though the same has not been stipulated under the A&C Act in clear terms.

“Another aspect to be seen is that as per the reply dated 4 th May 2018, the respondent also had the knowledge of pending proceedings before the Civil Court at Kota, Rajasthan, yet after over six months, the arbitration proceedings were initiated, continued and concluded without the petitioner,” the Court further reckoned.

The bench added that the fact that a Suit pertaining to the same issues was pending between the parties, was in itself a sufficient cause for the Arbitrator not to proceed ex-parte against the petitioner after giving it only one intimation and opportunity to appear for the arbitral proceedings.

The Court also remarked that recording of reasons for the findings made in the Award is an indispensable requirement.

Perusing the Arbitral Award under which the claims were decided in favour of the respondent, GAIL, the Court said, “A perusal of the order reveals that the same is a mere four page order reiterating the claims of the respondent and making the aforesaid summary findings while accepting the said claims. The order does not reveal appreciation of evidence or material or record and also does not lay down the grounds taken for the decision made. The claims were decided in the favour of the respondent as they were claimed and pleaded before the learned Arbitrator.”

The bench thus concluded: “The Arbitral Award dated 21st October 2019 was passed without proper communication to the petitioner, before proceeding ex-parte, and without affording reasonable opportunity to present its case. The learned Arbitrator did not make adequate efforts to be satisfied that sufficient cause was to be shown for non-appearance before proceeding ex-parte against the petitioner. Further, it was incumbent for the learned Arbitrator to furnish reasons for his findings in favour of the respondent,”.

The Court thus allowed the petition and set aside the ex-parte Arbitral Award.

Case Title: M/s Mittal Pigments Pvt Ltd vs M/s GAIL Gas Ltd

Citation: 2023 LiveLaw (Del) 215

Dated: 01.02.2023

Counsel for the Petitioner: Mr. Vijay Kumar Pandey, Advocate

Counsel for the Respondent: Mr. Deepayan Mandal, Mr. Naman Varma and Mr. Mridul Bansal, Advocates

Click Here To Read/Download Order