9 November 2021
INTRODUCTION
Recently, in the case of Godrej Properties Ltd. v. Goldbricks Infrastructure Pvt. Ltd.[i], the Hon’ble Bombay High Court has held that an arbitral tribunal cannot pass ex-parte orders on the mere filing of an Application under Section 17 of the Arbitration and Conciliation Act, 1996 (the Act) without giving the parties an opportunity to be heard. The Court has further distinguished the powers of an arbitral tribunal to pass interim orders under the Act from those enjoyed by a Civil Court under the Code of Civil Procedure, 1908 (CPC).
FACTUAL BACKGROUND
During the course of arbitral proceedings between Godrej Properties Ltd. (Petitioner) and Goldbricks Infrastructure Pvt. Ltd. (Respondent), the Respondent filed an Application under Section 17 of the Act and requested the Ld. Sole Arbitrator to fix an early date to hear the said Application. The Petitioner was also served with the said Application.
The Ld. Sole Arbitrator, immediately on the next day, without even hearing the Respondent, much less the Petitioner, considered the Respondent’s Application suo moto and passed an ex-parte ad-interim order inter alia directing the Petitioner to maintain status-quo until the Respondent’s Application is heard on merits. The Ld. Sole Arbitrator claimed to have been persuaded to take these drastic measures in consideration of the facts set out in the Respondent’s Application.
Being aggrieved by the said ex-parte ad-interim Order, the Petitioner filed an Appeal under Section 37 of the Act before the Hon’ble Bombay High Court.
ARGUMENTS BY THE PARTIES
On behalf of the Petitioner, it was inter alia argued that:
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It is a legitimate expectation of the parties that the arbitral tribunal would hear them before passing any orders on any fresh Applications under Section 17 of the Act, since the same is a requirement under Section 18 read with Section 24 (2) of the Act;
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The Respondent never prayed for an ex-parte ad-interim Order whilst moving the arbitral tribunal;
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The only request made by the Respondent was that the arbitral tribunal fix a date for hearing the Respondent’s Application;
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It is alien to the arbitration jurisprudence and/or it is not a practice in our country that an arbitral tribunal would pass orders without notice to the parties involved in the arbitral proceedings. There is an express departure from what has been adopted by the Indian legislature in the year 2006 from Article 17B of the UNCITRAL Model Law on International Commercial Arbitration (UNCITRAL Model Law);
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Even if it is assumed that ex-parte ad-interim reliefs are prayed for, the requirements prescribed under Order 39 Rule 3 of the CPC need to be satisfied;
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Ex-parte orders having serious consequences ought not to be passed without hearing the parties.
On the other hand, the Respondent, seeking dismissal of the Appeal, submitted that:
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The cause to move the Application was to prevent the Petitioner from frustrating any orders which shall/ may be passed by the arbitral tribunal in pending Applications before it;
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The requirement of sub-rule (3) of Order 39 of the CPC stood satisfied. If the reliefs as prayed for in the Respondent’s Application were not granted by the arbitral tribunal, any subsequent award would be equivalent to a paper award leading to the likelihood of multiplicity of proceedings;
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The parties would be heard by the arbitral tribunal on the adjourned date, when they would be at liberty to assert their respective pleas before the arbitral tribunal.
FINDINGS AND ANALYSIS
The pertinent issue for consideration in the Appeal before the Hon’ble Bombay High Court was whether, given the facts of the case, it was appropriate for the Ld. Sole Arbitrator to have passed the ex-parte ad-interim Order on the Respondent’s Application?
The Hon’ble Bombay High Court held that a joint reading of Sections 18, 19 and 24 of the Act postulate that in the conduct of the arbitral proceedings, the fundamental requirement would be that the parties are not only treated with equality but are given a full opportunity to present their case, more so, when the parties are already before the arbitral tribunal.
The Hon’ble Court observed that sub-section (2) of Section 19 of the Act recognises the role of parties as it allows them to agree on the procedure to be followed by the arbitral tribunal in conducting its proceedings. This places an arbitral tribunal on a different footing from that of a Civil Court. The crucial provision, however, is Section 24 of the Act. Sub-section (2) of Section 24 inter alia mandates that the parties ‘shall be’ given sufficient advance notice of ‘any hearing’.
The Hon’ble Court further observed that the provisions of Sections 18, 19 and 24 of the Act would be required to be read in conjunction, as there is a common thread passing through these provisions in relation to the conduct of arbitral proceedings. This means that parties need to be fairly treated at all stages of the arbitral proceedings, and an adequate/ sufficient opportunity is made available to them to present their case on any proceeding before the arbitral tribunal.
The Hon’ble Court was of the opinion that such provisions certainly make it incumbent upon the arbitral tribunal to give sufficient notice of any hearing to the parties before it. In the circumstances, it would be unknown to law and quite peculiar for an arbitral tribunal to pass ex-parte ad-interim orders on the mere filing of an Application under Section 17 of the Act, without even hearing the party making the application, much less the contesting party, who would certainly be affected and/ or prejudiced by such orders.
The Hon’ble Court observed that the Indian legislature has deliberately kept away and/or not accepted the 2006 amendment to the UNCITRAL Model law. Prior to 2006, there was no provision under the UNCITRAL Model Law for passing preliminary orders in arbitral proceedings. The departure was made when amendments were made in the year 2006 by insertion of Chapter IV-A, providing for ‘interim measures and preliminary orders’. The said amendments do not appear to be a common feature in the arbitral jurisprudence prevailing in many countries.
The Hon’ble Court opined that the Respondent’s Application did not reflect any glaring extraordinary situation or exigencies warranting the passing of the ex-parte order of the nature passed by the arbitral tribunal, without the issuance of a notice, depriving the Petitioner the opportunity to be heard. The reliefs sought were also not of a nature that the Respondent, in the absence of an ex-parte order, would be placed in such a prejudicial position that no restitution was possible.
Further, as far as Order 39, Rule 3 of the CPC is concerned, the Court opined that the arbitral tribunal ought to have issued notice before passing such an order of injunction. Highlighting the nuances of arbitral proceedings, as opposed to proceedings before Civil Courts, the Court held that the power of Civil/Commercial Courts to pass ex-parte orders could not be stretched to arbitral proceedings. In support of this reasoning, the Court relied on Section 24(2) r/w Section 18 of the Act, holding that the arbitral tribunal must necessarily give sufficient advance notice of any hearing, owing to its obligation to treat all parties equally, at all stages of the proceedings.
CONCLUSION
The Bombay High Court has shed some light on the powers of an arbitral tribunals to pass interim orders under Section 17 of Act, and the distinction between the powers of a Civil Court to grant interim reliefs under Section 9 of the Act.
Although Section 17 of the Act has been so amended to empower the arbitral tribunal with the same powers to grant interim measures as a Civil Court would under Section 9[ii], it would appear that the powers of a Civil Court derived from the CPC to pass ex-parte orders will not apply to arbitral tribunals.
Under Section 9 of the Act, although Civil Courts are empowered to pass ex-parte orders, ,the same will have to adhere to the principles/ essence of Order 39 of the CPC.
In contrast, an arbitral tribunal cannot pass orders without giving the other side sufficient notice, followed by an opportunity to present their case.[iii] In a similar factual scenario, the Delhi High Court remanded a Section 17 Application back to the arbitrator to be decided afresh, since the impugned order had been passed in the absence of the Petitioner, without any prior intimation of the hearing.[iv] However, this does not mean that the arbitral tribunal is altogether prohibited from hearing cases ex-parte. An arbitral tribunal may validly proceed with hearing a case even in the absence of a party, provided that the arbitrator(s) makes known his intention to proceed ex-parte in the absence of any party, and such party, having notice of this fact, remains absent at the next hearing.[v] Therefore, if a party is absent without sufficient reasons, any orders passed ex-parte will be valid.[vi]
In the present case, the Bombay High Court also distinguishes between the nature of reliefs that can be granted by a Civil Court and an arbitral tribunal, vis-à-vis Section 9 and Section 17 of the Act, respectively, and sets required restrictions on the powers of an arbitral tribunal when it comes to passing ex-parte orders without providing all parties with adequate notice, and an opportunity to be heard. This practice is in consonance with the principles of natural justice as well as internationally accepted principles of arbitration law, wherein an arbitrator is not permitted to proceed ex-parte without giving the other side due notice.[vii]
*The author was assisted by Paralegal, Agneya Gopinath and Intern, Hitesh Nagpal
For further information, please contact:
Aditya Mehta, Partner, Cyril Amarchand Mangaldas
aditya.mehta@cyrilshroff.com
[i] Order dated 13th October 2021 in Commercial Arbitration Petition (L) No. 23500 of 2021, High Court, Bombay.
[ii] Arcelor Mittal Nippon Steel India v. Essar Bulk Terminal. SLP 13129 (C) of 2021
[iii] Sohan Lal Gupta & Ors. V. Asha Devi Gupta & Ors. (2003) 7 SCC 492 – Paragraph 23:
“23. For constituting a reasonable opportunity, the following conditions are required to be observed :
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Each party must have notice that the hearing is to take place.
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Each party must have a reasonable opportunity to be present at the hearing, together with his advisers and witnesses.
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Each party must have the opportunity to be present throughout the hearing
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Each party must have a reasonable opportunity to present evidence and argument in support of his own case.
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Each party must have a reasonable opportunity to test his opponent’s case by cross-examining his witnesses, presenting rebutting evidence and addressing oral argument.
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The hearing must, unless the contrary is expressly agreed, be the occasion on which the parties present the whole of their evidence and argument. “
[iv] N.C. Mittal & Co v. Ministry of Urban Development 2008 (104) DRJ 160
[v] Krishnabhagwan Rajaram Sharma v. Tata Motors Finance Ltdd. 2015 SCC OnLine Bom 479, relying on the decision in Damia Cement (Bharat) Ltd. v Advance Commercial Co Ltd. 58 (1995) DLT 791
[vi] Id. Relying on St. Joseph’ Hospital v. Jimmy, (2001) 2 KLT 514
[vii] Russell on Arbitration, 20 Edn. (1982) at page 263
