Arbitral Tribunal’s Refusal To Share Key Documents Vitiated Fairness Of Proceedings: Bombay High Court
Sanchayita Lahkar
The High Court of Bombay Single Bench of Justice Somasekhar Sundaresan set aside an arbitral award after concluding that the tribunal’s refusal to share key documents with one party had undermined the fairness of the proceedings. The Court held that an award issued without permitting access to material necessary for contesting a damages claim amounts to a breach of natural justice and deprives the affected party of a meaningful chance to present its defence. The dispute concerned allegations of failure to supply goods under a government procurement arrangement, leading the Government to seek damages through arbitration. Finding that the arbitral process lacked due process and that the challenge was maintainable under the 1996 Act, the Court directed that the award could not be sustained.
The matter arises from an appeal under Section 37 of the Arbitration and Conciliation Act, 1996, filed against an order dated October 21, 2011, by the District Judge, Pune, which refused to exercise jurisdiction under Section 34 regarding an arbitral award dated January 16, 1998. The dispute originates from a tender issued in December 1994 for supply of meat, fowl, eggs, and fish for the period April 1, 1995 to March 31, 1996. The appellant had submitted bids at specified rates, deposited a security amount of Rs. 2.20 lakhs, supplied meat until May 28, 1995, and later informed that supply at the contracted rate was not possible.
The respondents issued a show-cause notice on July 1, 1995 and forfeited the security deposit. They thereafter pursued damages through arbitration, claiming approximately Rs. 35.42 lakhs, which included Rs. 33.22 lakhs for procurement of meat from the market. The arbitrator, a Lt. Colonel, was appointed on April 4, 1996, after the 1996 Act came into force. During the arbitral proceedings, the appellant sought information regarding quotations, market rates, supply orders, and vouchers; several requests were rejected by the tribunal.
The appellant contested the existence of a formally executed contract under Article 299 of the Constitution and claimed absence of an arbitration agreement. A suit filed by the appellant led to a temporary status quo order, later vacated. The arbitral award was passed purportedly under the 1940 Act. Subsequently, the respondents sought declaration of the award as a decree, while the appellant challenged it. On August 29, 2005, the Civil Judge held the 1940 Act inapplicable, returned the challenge application, and granted liberty to file under Section 34 within 30 days. The appellant filed the Section 34 petition within that period. The District Judge, however, again held that the 1940 Act applied, treated the petition as time-barred, and upheld the award.
The Court recorded that the Liberty Order had “attained finality” and that the 1996 Act clearly applied because “the commencement of the arbitral proceedings under Section 21 of the Act was clearly after the 1996 Act came into force.” It stated that the Impugned Order was “wrong to have held that the 1940 Act would apply” and that there was “no basis to hold that the Section 34 Application was barred by limitation.”
On the standard of review, the Court recorded that an appeal under Section 37 required applying the same scope of review as a Section 34 court, stating, “the scope of interference…is restricted and subject to the same grounds as the challenge under Section 34.” It affirmed that it must examine the award “through the prism of Section 34, in much the same way the District Court ought to have examined it.”
The Court observed that the claim was for damages, and the arbitrator was required to consider essential elements such as market price, difference in rates, mitigation, and availability of meat. It noted that the award was silent on these issues: “There is not a whisper of an analysis.” It further recorded that the agreement itself required reasons, stating, “the arbitrator shall give reasons for his award.”
Regarding denial of material, the Court recorded that the tribunal rejected requests for quotations, local market rates, supply orders, and vouchers, stating they were “not relevant” or “outside the purview.” Even information on bulk availability was denied on the ground that it was the appellant’s duty to supply.
The Court observed: “The approach of the Learned Arbitral Tribunal is untenable and tramples upon basic expectations of natural justice.” It added that the award was “in serious violation of principles of natural justice” and “contrary to the contract” for failure to provide reasons.
It further stated that the award was made without a “judicial approach,” citing that the tribunal acted without providing underlying documents or reasoning, rendering the decision “arbitrary and whimsical” within the meaning discussed in governing precedent.
The Court recorded that the award was also in conflict with public policy due to denial of inspection and that it amounted to a “summary judgement by awarding whatever had been claimed.” It noted that this failure constituted a fundamental error of law.
The Court stated: “In the result, I find that the Impugned Order as well as the Arbitral Award are unsustainable and deserve to be set aside. The captioned Appeal is therefore allowed. Having examined the conduct of both parties throughout the proceedings right since the commencement of arbitration, I am satisfied that no case is made out for award of costs.”
Advocates Representing The Parties
For the Petitioners: Mr. S.K. Halwasia, Ms. S.S. Halwasia, Mr. Keshav Thakur
For the Respondents: Mr. Mohamedali M. Chunawala, P.S. Gujar
Case Title: Iqbal Trading Company v. Union of India & Ors.
Neutral Citation: 2025: BHC-AS:47439
Case Number: Arbitration Appeal No. 27 of 2012
Bench: Justice Somasekhar Sundaresan
