Arbitration in the hands of those who “care scant for ethics”, Gujarat High Court

Aghast at the allegations of bias and delay levelled against retired Supreme Court Judges who were part of an arbitration proceeding, the Gujarat High Court has observed that in the recent times, the litigating parties have developed a “rank commercial mindset” to pursue their commercial interests in a self-serving manner.

While expressing its disappointment at the “sorry state of affairs” in the field of arbitration, the Court said,

“The affairs of the arbitration have touched the state of nadir at the hands of those who care scant for ethics in litigating, where fairness to legal forums and faith in them are sine qua non.”

The observations were recorded in a judgment passed by a Single Judge Bench of Justice NV Anjaria in an application filed under Section 9(1)(ii) of the Arbitration and Conciliation Act, 1996.

The dispute pertained to a Limited Liability Partnership set up between the applicant, Manbhupinder Singh Atwal and two respondents. The applicant stated that respondent No.1, Neeraj Kumarpal painted a rosy picture of himsel as the owner of a business empire and lured him into joining the partnership firm with an investment of Rs. 45 crore.

The partnership became sour after the applicant discovered that Kumarpal was misappropriating and siphoning off money from the bank account of the firm without the knowledge of the applicant.

Kumarpal was then expelled from the firm on the allegation that he had acted fraudulently and had embezzled money from the bank account of the partnership firm.

Subsequently, the applicant, as well as other respondents, collectively invoked the arbitration clause under the partnership agreement.

The parties chose their nominated members but failed to appoint the Presiding Officer. Thereafter, an application under Section 11 was filed before the Supreme Court which appointed a retired Judge of the Supreme Court as the Presiding Arbitrator.

An Arbitral Tribunal thus stood constituted with three members and the arbitration proceedings began. On the first day of the hearing, the applicant moved an application before the Arbitral Tribunal under Section 17 of the Act, asking for various reliefs against the respondents.

Meanwhile, Kumarpal also filed a Section 17 application separately.

After the arguments on the applicant’s application were heard, the Tribunal reserved its order. However, for some reason, the Presiding Arbitrator expressed his inability to continue in the arbitration proceedings.

Subsequently, the Supreme Court appointed another retired Judge of the Supreme Court as the new Presiding Arbitrator. The re-constituted Arbitral Tribunal then set out a timetable for rehearing of the application under Section 17 filed by the applicant.

Order on the Section 17 application was reserved once more by the Arbitral Tribunal. However, soon after, the applicant wrote a letter making allegations against members of the Arbitral Tribunal.

In his letter, the applicant made insinuations against the Arbitral Tribunal, specifically targetting the Presiding Arbitrator, a Retd. Supreme Court Judge. The letter suggested that the Arbitral Tribunal was a participant in prolonging the arbitral proceedings as it entertained “frivolous and dilatory” claims made by the respondents.

Further alleging that the Presiding Officer was “unfortunately not keeping well” and could not even “recollect arguments”, the applicant also challenged the capacity of the Presiding Officer to hear the application.

The applicant stated that the Tribunal had been acting in favour of the respondents by acting leniently and giving obvious preferences. It was further stated that the Presiding Arbitrator should consider himself withdrawn from the arbitration proceedings.

After the letter, the applicant’s nominee co-arbitrator, who was also a retired Supreme Court Judge, tendered his resignation and withdrew from the Tribunal. The letter also received sharp reaction from the Presiding Arbitrator. He denied all the allegations raised against him and ultimately withdrew from the arbitration proceedings.

With just one arbitrator left on the Tribunal, the applicant moved to nominate a fresh member. Ultimately, a fresh Arbitral Tribunal of three came into existence.

Meanwhile, the applicant filed the present application before the High Court seeking the same relief that was sought in the Section 17 application.

Before the High Court, the applicant argued that the delay provided sufficient ground to him to approach the Court under Section 9. It was further argued that in light of the facts of the case, the bar under Section 9(3) of the Act would not apply.

Kumarpal, on the other hand, opposed the application by claiming the applicant had “placed a convenient version of facts which were far from correct”. It was submitted that the Arbitral Tribunal consisting of two retired judges of the Supreme Court had to disband itself due to applicant’s conduct.

The respondent claimed that the applicant adopted “different means” and wrote the scathing letter after finding that he was unlikely to succeed in his application under Section 17 of the Act.

After analyzing the facts at hand, the Court concluded that the delay in the arbitral proceedings was due to the applicant’s own conduct.

The Court further stated that the allegations made in the letter against the members of the Arbitral Tribunal, particularly the Presiding Arbitrator were not shown to be substantiated by any material.

It thus recorded that the conduct of the applicant could not be brushed aside as being “non-bearing” for deciding the Section 17 application.

“While the entire approach of the party to raise allegations against the arbitrators was deplorable, the act of filing the present application under Section 9 of the Act wholly lacked in its legal strength when it could not be suggested by any circumstance, aspect or factor that the remedy of Section 17 already availed would be rendered inefficacious before the Arbitral Tribunal already constituted.”

Holding that the applicant could not be permitted to take advantage of his own conduct to reap the benefit of Section 9(3), it observed,

“A party who indulges into bare allegations against the arbitrators for alleged inaction and by making allegations of bias and levelling insinuations without any proof or material, cannot complain at the same time that the proceedings stood protracted and the remedy of application under Section 17 has become inefficacious. Nor the act of making allegations per se against the members of the Arbitral Tribunal by any party to the arbitration could be viewed as a circumstance rendering the remedy under Section 17 of the Act to be not efficacious.”

The Court thus deemed it appropriate to reject the application and held that it was for the newly constituted Arbitral Tribunal to take it to its logical end.

“The proceedings under Section 9 are not appellate proceedings. Nor Section 9 of the Act can be converted or used as an appeal when the Arbitral Tribunal is available to look into the merits for the similar prayers which is pending in this case, or in a given case could be made to the Tribunal, under Section 17 of the Act.”

Before parting, the Court nonetheless made certain observations with respect to the present arbitration scenario.

“..the process of arbitration has its own sanctity. The arbitral process is a process in law. It is a statutory procedure… Any process of law including the arbitration process is not a trading. Litigants are expected to observe the norms of decency.”

Coming to the instant case which led to the “stalwarts in the legal field” to discontinue from an Arbitral Tribunal, the Court remarked,

“The facts of the instant case left a prima facie impression that the litigant party finding himself to be on the backfoot in terms of favourable order and sensing that proceedings may not turn out to be in his favour, proceeded to make allegations in black and white against the Presiding Arbitrator who was none other than a highly respectable Judge of the Supreme Court (Retd.)”

The Court expressed its disappointment at the state of affairs in which the litigants do not accord respect to judges and legal luminaries. It said,

“Levelling allegations and repeating them in the legal pleadings have to be necessarily eschewed. Besides that the approach of the applicant on this count ..Such litigants with self-care, accord (little) respect to the members of the Honourable Judges, the members of the legal fraternity and legal luminaries chosen by themselves to be their arbitrators or representatives. The affairs of the arbitration have touched the state of nadir at the hands of those who care scant for ethics in litigating, where fairness to legal forums and faith in them are sine qua non.”

The total sequence of events and the conduct of the applicant has contributed only to bring the dispute resolution remedy of arbitration under the Arbitration Act to disrepute, it said.

Therefore, apart from dismissing the Section 9 application, the Court also imposed a cost of Rs. 10,000 on the applicant.

As per the Court’s order, the amount shall be paid to the Gujarat High Court Legal Aid Committee.

The applicant was represented by Senior Advocate Shalin Mehta with Advocate Parth Contractor.

Kumarpal was represented by Advocate GH Virk.

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