India: Arbitral Tribunal Not Empowered To Pass Ex-Parte Ad-Interim Order: High Court Of Bombay

In a recent decision in Godrej Properties Ltd. v. Goldbricks Infrastructure Pvt. Ltd.¹, the High Court of Bombay (High Court) held that an ex-parte ad-interim order could not be passed by an arbitral tribunal without providing sufficient notice, and subsequently hearing the parties concerned. The High Court observed that the arbitral tribunal may be of the view that some urgent orders need to be passed to protect the interests of the parties, however, procedural fairness would not permit the tribunal to pass an ex-parte ad-interim order without having heard the disputants. In this article, we navigate through the facts and findings of the abovementioned judgment of the High Court.

Brief facts

By an order dated 22 January 2021, the High Court by consent of the parties, appointed the sole arbitrator to adjudicate the disputes amongst them. Thereafter, the parties filed their respective applications under Section 17 of the Arbitration and Conciliation Act, 1996 (Arbitration Act) praying for interim reliefs. The arbitrator reserved the Section 17 applications for orders which were awaited at the time of hearing the present matter.

On 7 October 2021, the respondent copied appellant in an email which was sent to the arbitrator. The respondent in its email had enclosed another application under Section 17 and stated that it was compelled to move a second application for the reasons set out in the application. The arbitrator, on 8 October 2021, considered respondent's second application under Section 17 and without even hearing the parties passed an ex-parte ad-interim order. Being aggrieved by the ex-parte ad-interim order passed by the arbitrator, the appellant filed an appeal under Section 37 of the Arbitration Act.

Contentions of the appellant

The appellant contended that it was a legitimate expectation of the parties and certainly of the appellant that the arbitral tribunal would hear the parties before it passed any order on respondent's second application under Section 17. Further, the appellant argued that a perusal of respondent's averments in its second Section 17 application clearly demonstrated that it was never the prayer of the respondent to seek any ex-parte ad-interim order. The appellant submitted that it was alien to arbitral jurisprudence across the world that an ex-parte ad-interim order is passed without notice to the parties involved in the proceedings.

Contentions of the respondent

The respondent argued that the cause to move a second application under Section 17 was to prevent frustration of arbitral interests of the respondent in its pending Section 17 application. The respondent relied on its averments and referred to specific prayers in this regard. Further, the respondent also submitted that the arbitrator was persuaded by the consideration that the facts set out in the application called for status quo to be maintained till the application was heard.

Held

The High Court noted that the moot question in the instant case was whether in the facts of the case, it was appropriate for the arbitral tribunal to grant an ex-parte ad-interim order on respondent's Section 17 application?

At the outset, the High Court discussed the scheme of the Arbitration Act for conducting arbitral proceedings. The High Court referred to Section 18 of the Arbitration Act which embodied the fundamental requirement that the parties shall be treated equally and each party 'shall be' given a full opportunity to present its case. Similarly, Section 19(2) recognized the principle of party autonomy and the role of the parties in setting out the procedure to be followed by arbitral tribunal in conducting the proceedings. Lastly, the High Court referred to Section 24(2) of the Arbitration Act which amongst other things, mandates that the parties 'shall be' given sufficient advance notice of 'any hearing'. Based on the above provisions, the High Court observed that the parties ought to be treated fairly at all stages of the arbitral proceedings and an adequate opportunity must be accorded to them to present their case.

Therefore, the High Court concluded that it would be unknown to law and quite peculiar for an arbitral tribunal to pass an ex-parte ad-interim order without even hearing the party making the application, much less the party contesting the same. The High Court clarified that the arbitral tribunal would not be permitted on grounds of procedural fairness to pass an ex-parte order on a Section 17 application even if were of the firm opinion that some urgent orders were required to be passed. Accordingly, the impugned order was set aside and the respondent was at liberty to move the arbitral tribunal on its second Section 17 application, with proper notice to the appellant.

Comment

It is a well-recognized principle under global arbitration jurisprudence that an arbitrator is a creature of the contract and is required to operate within the four walls of the contract. The procedure of conducting the arbitration is governed by the underlying contract and the laws applicable to it. The arbitrator must follow the due procedure and, at all times, recognize his responsibility towards the arbitrating parties. Any conduct that hints of partiality towards or against a party goes to the root of the matter and may potentially render the decision(s) of the arbitrator invalid. The High Court in the instant matter has rightly decided the matter on ground of the arbitrator's duty to observe procedural propriety and ensure fair and equal treatment to the parties.

Footnote

1. Godrej Properties Ltd. v. Goldbricks Infrastructure Pvt. Ltd., Commercial Arbitration Petition (L.) No. 23500 of 2021.

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