Principles Of Natural Justice Are Non-Negotiable In Arbitral Proceedings Even If Tribunal Is Comprised Of Lay Persons: Madras High Court

The bench of Justice N. Anand Venkatesh, while hearing a challenge under Section 34 of the A&C Act, observed that the arbitral Tribunal did not give an opportunity to Mr Maher Dadha (“the Petitioner”) at a very crucial stage of the arbitral proceedings. Furthermore, the Tribunal did not reply to the Petitioner's letter dated 01.10.2005, wherein an accommodation to reschedule the hearing from 05.10.2005 was sought.

The bench, taking into consideration that the impugned award was passed by lay persons, followed the ratio laid down in M/s.State Industries Promotion Corporation of Tamil Nadu Ltd. v. M/s.RPP Infra Projects Ltd. The bench observed:

"…where an award is passed by a lay person, the Court should not expect that the reasoning and the award passed will measure up any quality to a trained legal mind. Such awards can be assessed only by looking into the reasons assigned. To test whether it is a possible view based on the evidence relied upon by the Arbitrators, the Court must only see if the determination is substantially right. However, the reasons may not measure up to such a quality as is expected of a legally trained mind."

"However, whatever may be the composition of the Arbitral Tribunal namely a legally trained mind or lay person or family elders, following the principles of natural justice is non negotiable," it added.

The bench relied upon NHAI v. Unitech NCC (JV), passed by the Delhi High Court and affirmed by the Madras High Court in M/s Prime Store, Rep. by its Partner Mr S.Kaarthi & Others. v. Sugam Vanijya Holdings (P) Limited, wherein it was held that deviation from the principles of natural justice renders an award to conflict with the Public Policy of India.

The dispute in question pertains to the affairs and the financial condition of the four companies jointly constituted by Mr. Maher Dadha (“the Petitioner”) and Mr. M. Mahendra Dadha (“Respondent No. 4”), which were under the management of Mr. M. Mahendra Dadha (“Respondent No. 4”) and his family from 1993 till 2005.

It was the Claimant's (“the Petitioner”) case before the Tribunal that there were irregular debit and credit entries in the books of accounts of the four companies. Furthermore, massive borrowings and expenditures were incurred by the companies' management. Therefore, the Petitioner wanted the Arbitral Tribunal to examine the companies' books of accounts.

It was the Petitioner's case before the Section 34 Court that a sufficient opportunity to present his case was not provided by the Arbitral Tribunal. Furthermore, the impugned award lacks proper reasoning and is a non-speaking award.

The bench noted that Mr Maher Dadha (“the Petitioner”), after getting the necessary additional details along with the letter issued by the Tribunal, sought an opportunity to confirm or deny the statements of isolated accounts, and request the Arbitral Tribunal not to pronounce an award before 10.10.2005. However, the Arbitral Tribunal vide letter dated 29.09.2005 directed him to be present on 03.10.2005. The Arbitral Tribunal also ignored the Petitioner's letter dated 01.10.2005 requesting to reschedule the hearing date. Finally, on 09.10.2005/10.10.2005, the Arbitral Tribunal passed the impugned award.

The bench observed that the omission to provide adequate opportunity to the Petitioner at a crucial stage of the proceedings had violated the principles of natural justice. The bench allowed the Section 34 petition and set aside the impugned award. The bench also permitted the parties to approach before the same Arbitral Tribunal.

Case Name: M. Maher Dadha v. Mr. S. Mohanchand Dadha and Ors.

Citation: 2025 LiveLaw (Mad) 379

Case Number: Original Petition Nos.80 of 2006 & 862 of 2007

Counsels for the Appellant: Mr.H.Karthik Seshadri for M/s.Iyer and Thomas

Counsels for the Respondents: Mr.Gautam S.Raman