"I realise that some of my criticisms may be mistaken; but to refuse to criticize judgements for fear of being mistaken is to abandon criticism altogether... If any of my criticisms are found to be correct, the cause is served; and if any are found to be incorrect the very process of finding out my mistakes must lead to the discovery of the right reasons, or better reasons than I have been able to give, and the cause is served just as well." -Mr. HM Seervai, Preface to the 1st ed., Constitutional Law of India.

Monday, March 5, 2012

Delhi High Court Imposes Costs on Overenthusiastic Arbitrator

Rajesh Batra v. Ranbir Singh Ahlawat 2011(4) Arb LR 371 (Delhi) is one of hundreds of cases decided by the High Courts every year on arbitration. Normally, such a case wouldn't find its place here unless there is a significant issue it touches upon. Rajesh Batra is one such case. It deals with the important issue of immunity of the arbitrator for his acts in the arbitration proceedings.

Rajesh Batra (Batra) filed an application under Section 34 of the Arbitration and Conciliation Act, 1996 (Act) challenging the validity of the arbitral award  passed by the sole arbitrator, Shri Deepak Arora, advocate. Batra and Ranbir Singh Ahlawat (Ranbir) had entered into a collaboration agreement which provided for resolution of disputes through arbitration by reference to a "mutually appointed arbitrator". Disputes arose between the parties. Ranbir appointed Shri Deepak Arora, advocate as arbitrator but no mutual consent was given to that arbitrator by Batra. The sole arbitrator issued notice to both parties and required them to appear before him without seeking Batra's consent. Batra challenged the jurisdiction of the arbitrator which was rejected by the arbitrator on the ground that there was implied consent for appointment in the absence of prior objection from Batra for the appointment.

Vipin Singhi, J set aside the award on the ground that the arbitrator did not have jurisdiction in the absence of consent and observed: 
"The present is a shocking case where the arbitrator assumed jurisdiction without even caring to see that the parties had not appointed him mutually as required by the agreement.. Despite being put to notice that his appointment itself is without authority and jurisdiction, the arbitrator brazenly proceeded to conduct the proceedings...
The Judge held, after hearing Ranbir and the arbitrator, that condoning such a conduct would give rise to "sharp practices" and imposed costs of Rs. 10,000 each on Ranbir and the arbitrator.

There is no staturory provision in India on liability of arbitrators for acts done in the course of arbitration. This judgement is not to be taken as laying down that an arbitrator would be held liable for costs if the award is patently illegal. After ONGC v. SAW Pipes (2003), the term "patent illegality" has been construed widely by the Indian courts and an award which is patently illegal is against public policy of India. This judgement, however, lays down the important point that where a party has not consented to arbitration by an arbitrator when the arbitration agreement provides so, putting such party to "unnecessary harassment on account of the completely unjustified and illegal conduct of [passing an arbitral award against it by] the... learned arbitrator" would lead to liability on the arbitrator for costs. This judgement, it is submitted, is in line with the best international practices in holding arbitrators liable for mala fide acts.  See, for example Article 16 of the UNCITRAL Arbitration Rules, 2010 which provides:
"Save for intentional wrongdoing, the parties waive, to the fullest extent permitted under the applicable law, any claim against the arbitrators, the appointing authority and any person appointed by the arbitral tribunal based on any act or omission in connection with the arbitration."
Article 29(1) of the English Arbitration Act, 1996 provides:"
"An arbitrator is not liable for anything done or omitted in the discharge or purported discharge of his functions as arbitrator unless the act or omission is shown to have been in bad faith."
The judgement does not state whether the applicant prayed for imposition of costs on the sole arbitrator. It appears that the applicant did not pray for such a relief. Hence, the question arises whether imposition of costs was on account of an implied contractual right to raise claims against an arbitrator in case of "unjustified and illegal conduct" of the arbitrator or on account of the power of the court to impose costs suo motu. Perhaps, the court could have gone deeply into the question of arbitrator immunity, considering the importantance of the issue. The judgement can be accessed from here.

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