Death Of One Of The Arbitrators - But Decided To Pass Award Prior To Death - Not Contrary To Section 10 Of A&C Act: Rajasthan High Court

The Single Bench of Justice Vijay Bishnoi held that the principles of res judicata also apply between two stages of the same litigation. Thus, it ruled that since the award debtor had failed to make payment of 75% of the award amount, passed under the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act), within the stipulated time granted by the High Court, the appeal filed by the award debtor under Section 34 of the A&C Act before the Commercial Court stood dismissed. Therefore, the challenge made by the award debtor against the execution proceedings initiated by the award holder were barred by res judicata.

The petitioner- M/s. Shree Ram Junawa Industries, purchased goods from the respondent- M/s. Rounak Steels; however, it allegedly failed to make payment within the stipulated time. The respondent moved an application before the Facilitation Council under the provisions of Section 18(1) of the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act). The Facilitation Council passed an arbitral award under Section 18(3) of the MSMED Act, directing the petitioner to pay certain amount along with interest to the respondent.

Against this, the petitioner filed an application under Section 34 of the Arbitration and Conciliation Act, 1996 (A&C Act) before the Commercial Court, who directed the petitioner to deposit 75% of the award amount as per Section 19 of the MSMED Act.

The petitioner filed a writ petition before the Rajasthan High Court, challenging the order of the Commercial Court. The High Court passed an order granting time to the petitioner to deposit 75% of the award amount in three monthly instalments, taking into consideration its financial condition.

Thereafter, the respondent filed an execution petition before the Commercial Court, seeking enforcement of the arbitral award. Against this, the petitioner filed an application under Section 47 of the Code of Civil Procedure, 1908 (CPC), raising certain objections in the execution petition filed by the respondent.

The Commercial Court passed an order dismissing the said application filed by the petitioner, against which the petitioner filed a writ petition before the Rajasthan High Court.

The petitioner- M/s. Shree Ram Junawa Industries, submitted before the High Court that the Arbitral Tribunal consisted of three members, however, the arbitral award against the petitioner was signed by only two members.

The petitioner argued that on the day the arbitral award was passed, the third member of the Arbitral Tribunal was already expired. Thus, it contended that since the award was passed by even number of members, the award was contrary to Section 10 of the A&C Act and therefore, it was null and non-executable.

Further, the petitioner averred that the limitation period for challenging the arbitral award is 120 days, however, the respondent had filed the execution petition before the expiry of 120 days. Thus, it contended that the respondent had initiated execution proceedings prematurely and therefore, the execution was barred by Section 36 of the A&C Act.

Section 10 of the A&C Act provides that the parties are free to determine the number of arbitrators, provided that such number shall not be an even number.

The Court observed that the limitation under the A&C Act for challenging the arbitral award is three months. Also, it noted that the application challenging the award can be entertained by the Court within a further period of thirty days, if the person challenging the award is able to show a sufficient cause. The Court upheld the finding of the Commercial Court that provisions which empower the court to grant further time to file any application, appeal or suit, beyond the limitation period, as per its discretion, cannot be termed as limitation period.

Thus, the Court ruled that the limitation for challenging the award is three months, and since the execution application was filed after the expiry of three months, it could not be said that the execution proceedings initiated by the respondent were premature.

The bench noted that at the time of passing of the arbitral award, the third member of the Arbitral Tribunal had expired. However, it observed that the day on which the Arbitral Tribunal had principally decided to pass the award, all the members of the Arbitral Tribunal were present and had signed the proceedings. The Court added that merely because the detailed award was passed on the day when one of the members of the Arbitral Tribunal was not alive, it cannot be said that the award became contrary to Section 10 of the A&C Act.

"Though, it is true that at the time of passing of the award dated 13.9.2021, the third member of the Arbitration Tribunal was no more as he expired prior to passing of the award dated 13.9.2021, but the fact remains that the Arbitration Tribunal has principally decided to pass the award on 1.4.2021 and on that day, all the members of the Arbitration Tribunal were present and signed the proceedings. Simply because the detailed award was passed on 13.9.2021, when one of the members of the Arbitration Tribunal was not alive, it cannot be said that the award became contrary to Section 10 of the Act of 1996. It is not the case of the petitioner-firm that immediately after the death of one of the members of the Arbitration Tribunal, it has raised any objection or prayed for appointment of new Arbitration Tribunal pointing out that one of the members of the Arbitration Tribunal is no more."

The bench ruled that though the petitioner was aware about the death of one of the members of the Arbitral Tribunal, however, it failed to raise any objection with respect to the fact that the decision to pass the award was not taken by all the three members of the Arbitral Tribunal.

The Court further noted that in the writ petition filed by the petitioner against the order of the Commercial Court directing it to deposit 75% of the award amount, the High Court had directed the petitioner to deposit 75% of the award amount in three instalments within the stipulated time. The bench observed that the High Court had clearly specified that if the petitioner made any default in payment of the instalments as directed, the appeal filed by it under Section 34 of the A&C Act before the Commercial Court would be automatically dismissed.

While noting that the petitioner had failed to deposit 75% of the award amount before the Commercial Court, as directed by the High Court, the Court held that the conduct of the petitioner in not depositing the stipulated award amount despite giving an undertaking before the High Court was a clear case of disobedience. Further, the bench ruled that the challenge made against the execution proceedings initiated by the award holder/respondent was barred by the principles of res judicata.

The Court added that since the petitioner had failed to make payment of 75% of the award amount within the stipulated time granted by the High Court, the appeal filed by the petitioner under Section 34 of the A&C Act before the Commercial Court stood dismissed. Therefore, the Court laid down that the arbitral award passed against the petitioner had attained finality.

Referring to the decision of the Apex Court in Satyadhyan Ghosal and Ors. versus Deorjin Debi and Anr. (1960), the Court held that the principles of res judicata also apply between two stages of the same litigation and thus, the writ petition filed by the petitioner was barred by res judicata.

The Court thus dismissed the writ petition.

Case Title: M/s Shree Ram Junawa Industries versus M/s Rounak Steels

Dated: 18.10.2022 (Rajasthan High Court)

Counsel for the Petitioner: Mr. Manoj Bhandari, Sr. Advocate with Mr. Akshat Verma

Counsel for the Respondent: Mr. Pramod Gupta

Citation: 2022 LiveLaw (Raj) 251 

Click Here To Read/Download Order