Authors: Prachi Garg (Associate Partner) and Prerna Verma (Senior Associate)
The Bombay High Court in Harkisandas Tulsidas Pabari & Anr. v. Rajendra Anandrao Acharya & Ors[1]. exercised its jurisdiction under Section 37 of Arbitration & Conciliation Act, 1996 (“Act”) to dismiss the Arbitration Appeals filed by the Appellants and upheld the Order passed by the Single Judge under Section 34 of the Act which set aside Arbitral Award dated September 21, 2005 (“Impugned Award”) on the grounds that the (i) Arbitrator lacked authorisation to recommence the arbitral proceedings; (ii) Memorandum of Understanding dated July 20, 1994 (“MoU”) did not constitute a concluded contract between the parties and (iii) MoU was impossible of being specifically performed through execution of the Impugned Award.
Brief Facts:
A MoU was executed between the parties whereunder the Respondents agreed to sell their respective undivided shares, title and interest in the property to the Appellants for a consideration. The Respondents terminated the MoU on account of the Appellants’ failure to pay the balance consideration and breaches of the MoU committed by them. The Appellants referred the disputes under the MoU to a Sole Arbitrator (“Arbitrator”) who passed an arbitral award in favour of the Appellants on April 1, 1998 (“1st Award”).
The Bombay High Court (“Court”) set aside the 1st Award on September 28, 1998 on the ground that notice of closure of arbitral proceedings was not given to the Respondents. The Court further sent the original record of the arbitral proceedings back to the Arbitrator and directed the parties to commence the arbitral proceedings afresh with the intervening time being excluded under Section 43(4) of the Act (“Remand Order”). The Appellants approached the same Arbitrator who fixed dates for hearings in the arbitral proceedings. The Respondents objected to the continuation of the arbitral proceedings before the same Arbitrator but the same were rejected by him. The Arbitrator passed the Impugned Award in favour of the Appellants holding that MOU is binding on the parties. Pursuant to a challenge raised by the Respondents under Section 34 of the Act, the Court set aside the Impugned Award. The Appellants challenged the said order in Section 37 of the Act before the Court on the ground that the Single Judge exceeded its jurisdiction under Section 34 of the Act to set aside the Impugned Award.
Arguments advanced by the parties concerned:
The Appellants contended that the Single Judge, by acting as an Appellate Authority over the Impugned Award, exceeded its jurisdiction under Section 34 of Act. The terms of the MoU were ignored to hold that there was no concluded contract between the parties and that the MoU could not be specifically performed. The Single Judge erroneously held that there was non-compliance of the provisions of Section 21 of the Act on account of the Appellants’ failure to give notice before proceeding with the arbitral proceedings. It was further contended that the provisions of Section 21 of the Act are not mandatory and that the requirements can be clearly waived.
On the other hand, the Respondents contended that the Impugned Award was rightly set aside as the same was passed in ignorance of contractual and statutory provisions. The Impugned Award was either based on no-evidence or ignored vital evidence which demonstrated the breach of MoU by the Appellants. There was no concluded contract between the parties as it was neither a development agreement nor an agreement for sale. The Impugned Award suffered from absence of jurisdiction as the Arbitrator unilaterally assumed jurisdiction after passing of the Remand Order. Since the reference of the Arbitrator had come to an end, the Appellants ought to have issued notice under Section 21 of the Act for commencing the arbitral proceedings, which they failed to do so.
The Court’s findings:
- Lack of authorisation to same Ld. Arbitrator to recommence the arbitral proceedings-
The Appellants as well as the Arbitrator erroneously presumed that the Court vide Remand Order remitted the arbitral proceedings back to the same Arbitrator whereas in actuality, the Remand Order warranted commencement of arbitral proceedings afresh. The power of remanding the matter to the same Arbitrator under Sections 33 and 34(4) of the Act can be exercised before an award is set aside and is not permissible after the 1st Award was set aside. Mere remittance of the original records to the Arbitrator did not mean that he had the mandate to resume/recommence the arbitral proceedings. The granting of liberty to the parties to ‘move afresh’ along with Court’s specific direction that the intervening period would be saved by virtue of provisions of Section 43(4) of the Act made it clear that the arbitral proceedings had to commence afresh. For commencing the arbitral proceedings by taking benefit of limitation under Section 43(4) of the Act, the procedure under Section 21 became mandatory.
2. Non-compliance with Section 21-
The Appellants unilaterally wrote to the same Ld. Arbitrator for resumption of arbitral proceedings. The Appellants did not follow the procedure mandated in Section 21 of the Act and erroneously presumed that the Court directed remission of proceedings to the same Ld. Arbitrator..
3. MOU was not a concluded contract and hence impossible to specifically perform-
Since the proposed course of action of either reconstructing the building or constructing additional floors was not clearly set out, there was no concluded contract between the parties. This vital material was excluded by the Arbitrator who merely concentrated on acceptance of part consideration by the Respondents. The specific performance of the MoU was impossible and MOU did not constitute a concluded contract.
Therefore, setting aside of an arbitral award warrants compliance of Section 21 and commencement of arbitral proceedings afresh and not a resumption of the arbitration proceedings by the same Arbitrator.
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Disclaimer: This article is general in nature and is not intended to be a substitute for specific legal advice. Please contact the author(s) for specific legal advice in this regard.
[1] Arbitration Appeal No.62 of 2007