Madras High Court rules tribunals duty bound to provide opportunity to parties deviating from procedure

Madras High Court rules tribunals duty bound to provide opportunity to parties deviating from procedure

States that the parties would be given full opportunity to present their case under the Arbitration and Conciliation Act

The Madras High Court has held that while arbitral tribunals have the liberty to apply their own expertise and knowledge to arrive at a conclusion, they are duty-bound to provide the parties involved an opportunity to present their case, particularly when they deviate from the already agreed procedure.

While deciding on the Transtonnelstroy – Afcons (JV) vs CMRL case, the court relied on various precedents, including the Ssangyong Engineering and Construction Company Limited vs NHAI case.

The bench comprising acting Chief Justice T Raja and Justice D Bharatha Chakravarthy stated that the parties would be given full opportunity to present their case under Section 18 of the Arbitration and Conciliation Act, 1996.

The court added that if any material was taken behind the back of the parties by the arbitral tribunal, thereby deviating from the standard procedure, the parties must be given an opportunity to comment on the same. In failing to provide such an opportunity, it would mean that the party was unable to present its case. Therefore, such a scenario was a material ground to challenge the arbitral award.

The court was adjudicating a batch of appeals filed by CMRL and Transtonnelstroy-Afcons, a joint venture that had entered into an agreement. According to the deal, CMRL was to carry out construction work for certain metro rail stations in Chennai.

But later, disputes arose after Transtonnelstroy allegedly failed to deliver by the due date as originally agreed upon. The parties then opted for arbitral proceedings to settle the dispute.

When the arbitral tribunal ruled in favour of Transtonnelstroy, the order was challenged by CMRL before the Madras High Court.

CMRL claimed that the arbitrators had deviated from the agreed procedure and conducted their own analysis to conclude that Transtonnelstroy was entitled to seek an extension of time for completing the project. The company further argued that the tribunal had failed to grant the latter an opportunity to present its case on certain aspects before arriving at a conclusion and ruling in favour of Transtonnelstroy.

The single-judge order passed in the matter was challenged by both CMRL and Transtonnelstroy before the division bench of the high court.

While Transtonnelstroy sought quashing of the order and prayed that the original arbitral award be confirmed, on the other hand, CMRL challenged only a portion of the order where the judge had directed the parties to go back to the tribunal to prove some of their claims.

Pertinently, the appeals involved allegations that the arbitral tribunal had relied on unmarked documents behind the back of the parties. Also, it did not provide them the opportunity to comment on the matter.

While considering the appeals, the division bench noted that the arbitral tribunal had called for such unmarked records after reserving the matter for orders. It also observed that the tribunal had failed to inform either of the parties about the purpose of collecting such records. While calling for the records, it had merely emailed both parties apprising them of it.

The court mentioned that such an email calling for the records could not be considered as granting the parties an opportunity. It was clear that they were kept in the dark about the purpose of calling for such records.

The bench stated, "Therefore, having found the necessity of the said documents, simply calling for the documents without divulging the reasons after reserving the case for orders and after their internal deliberation, clearly amounts to taking these materials behind the back of the parties.

It further said, "The emails of both the tribunals are extracted supra. It can be seen that there is absolutely no whisper whatsoever as to what the materials were called for. Merely marking a copy of the email to both sides does not amount to granting them the opportunity when the parties had no idea or clue as to what the purpose of it was."

The high court held that such an award was thus liable to be set aside under Section 34(2)(a) of the A&C Act.

The bench ruled, "The above self-anointed exercise of the tribunal forms the very basis of the award. It cannot be said that the tribunal was unaware of the requirements of opportunity for the parties to present their respective cases. It can be seen from its own order extracted supra when it marked Ex.R-301.

It further said, "A detailed oral evidence procedure has been agreed upon in the preliminary hearing. This kind of informal calling for evidence and acting upon it without even marking them as exhibits certainly amount to a departure from the agreed procedure behind the back of the parties. It has caused huge prejudice to the other side.

The court further noted, "A duty is enjoined on the tribunal to provide the parties an opportunity to comment on matters when they decided to deviate from the already agreed procedure of evaluating the case of the parties on the basis of evidence adduced, both oral and documentary and to adopt the method of technical evaluation by its own expertise, which would be clear from the passages extracted by the Supreme Court of India in paragraph No.53 of Ssangyong (cited supra). Therefore, the error on part of the tribunal is grave in nature."

Thus, the division bench upheld the part of the single-bench order that had set aside the arbitral awards. The court also clarified that since the award was already set aside, the parties must be given the liberty to commence "de novo proceedings in the manner known to law" rather than be sent back to the arbitral tribunal to continue the earlier adjudication.

Senior counsels G Masilamani, Vijay Narayan and advocate D Balaraman appeared for Transtonnelstroy-Afcons.

CMRL was represented by additional solicitor general N Venkataraman, senior counsel Yashodvaradhan, and advocate SS Arjun.