Proceedings Can Be Remitted Back To Same Arbitrator U/S 33 & 34(4) Of A&C Act Only Before Passing Of Award: Bombay High Court

Factual Matrix:

The parties had executed a Memorandum of Understanding (“MoU") dated 20.07.1994, pertaining to the sale of rights, title, and share in the property at Paper Mill Lane. The consideration of the transaction was ₹18 lacs, and between 1994 and 1996, the Appellant had paid ₹7.5 lacs. On 04.11.1996, the Respondent No.1 terminated the MoU on the ground that the second instalment was not paid, and a dispute arose between the parties. The Appellant referred the dispute to Arbitration vide letter dated 01.07.1997. The Arbitrator passed an award dated 01.04.1998, awarding the claims in favour of the Appellants.

The Award was challenged by the Respondent. The Court vide order dated 28.09.1998, set aside the Award on the ground that notice of closure of arbitration proceedings was not given to the Respondents. The original record to the Arbitrator. The Appellant approached the same Arbitrator, who fixed the hearing date. The Respondents objected to the constitution of the Tribunal vide letters dated 04.12.1998 and 07.12.1998. The objections were rejected by the Arbitrator, and subsequently, the Respondents participated in the proceedings.

The Arbitrator passed an award dated 21.09.2005 holding that the MoU was binding on the parties, and gave directions of specific performance to the Respondents. The Respondents challenged the Award u/s 34 of the A&C. The Section 34 Court, allowing the appeal, set aside the Award with directions to the Appellant to pay the costs of the Arbitration Petitions to the Respondent. Aggrieved by the common judgment, the Appellant had filed the present u/s 37 of the A&C Act.

Analysis of the Court:

The bench at the outset noted that the Section 34 Court set aside the arbitral Award on three grounds. Firstly, there is a lack of authorisation to recommence the arbitral proceedings; secondly, the MoU is not a concluded contract; and thirdly, there is an impossibility of specific performance of the MoU. The Court vide order dated 28.09.1998, set aside the Award dated 01.04.1998, on the ground that sufficient opportunities were not given to the Respondents. The Arbitrator did not give the Respondents a notice of closure of proceedings. Hence, the Respondents were not provided a fair opportunity to lead evidence. The Court did not dive into remanding the proceedings back to the same Arbitration, as such power was to be exercised before setting aside the Award. The parties were at liberty to initiate fresh proceedings, and by Section 43(4) of the A&C Act, the time spent in a Section 34 petition was to be excluded while calculating the limitation period.

The Appellants moved before the same Arbitrator without giving any notice to the Respondents. Both Respondents objected to the continuation of the same Arbitrator, which was rejected by the Arbitrator. This left no option for the Respondent but to participate in the arbitral proceedings. The Section 34 Court held that the jurisdiction of the Arbitrator is crippled with two errors. Firstly, the Court had not remanded the proceedings to the same Arbitrator, as remitting the proceedings cannot be done after the Award is set aside. Secondly, the Applicant did not comply with the requirements u/s 21 of the A&C Act.

The Tribunal's reasoning over their jurisdiction was flawed because the Section 34 Court did not change the arbitrator. After all, it granted liberty to the parties to 'move afresh'. The Section 34 Court, while granting the said liberty, directed the intervening period to be excluded from the limitation period by Section 43(4) of the A&C Act. Furthermore, the Respondents had raised objections to the continuation of arbitral proceedings by the same Arbitrator before the Arbitrator and the Section 34 Court. The Section 34 Court had rightly held that the Award was vitiated on account of the improper constitution of the Tribunal.

The bench further upheld the reasoning of the Section 34 Court that the MoU was not a concluded contract, and the specific performance of the MoU was impossible. The building was occupied by tenants/occupants, and the Respondents were entitled to construct or reconstruct additional floors by exploiting the additional FSI. As per Clause 5 of the MoU, it was the responsibility of the Respondent to obtain the occupants' consent concerning either the reconstruction of the building or the construction of an additional floor. Since the proposed course of action was not set out, and the parties had yet to agree on this crucial aspect. The MoU cannot be considered a concluded contract. Therefore, the direction of specific performance given by the Arbitrator to comply with the obligations under the MoU within one month is perverse.

Lastly, the bench observed that since the impugned judgment does not suffer from any perversity, and the Section 34 Court has not exceeded the boundaries drawn by Section 34 of the A&C Act. The bench, therefore, dismissed the appeal u/s 37 of the A&C Act.

Case Name: Harkisandas Tulsidas Pabari and Anr. v. Rajendra Anandrao Acharya and Ors.

Case Title: Arbitration Appeal No.62 Of 2007 With Arbitration Appeal No.63 Of 2007

Counsel for the Appellants:

1. Dr. Virendra Tulzapurkar, Senior Advocate with Mr. Rajiv Narula and Mr. Milind Mane i/b M/s. Jhangiani, Narula & Associates for the Appellants in Appeal No.62 of 2007.
2. Mr. Rajiv Narula with Mr. Milind Mane i/b M/s. Jhangiani, Narula & Associates for Appellants in Appeal No.63 of 2007.

Counsel for the Respondent:

1. Mr. Rahul Sarda with Ms. Rajalakshmy Mohandas, Ms. Mukta Chorge and Ms. Nehal Farukh i/b M/s. Rajalakshmy Associates for Respondent No.1A in Appeal No.62 of 2007 and for Respondent Nos. 2A in Appeal No.63 of 2007.
2. Mr. Abhijeet Joshi i/by Chaitanya R. Kulkarni for Respondent No. 2A in Appeal No.62 of 2007 and for Respondent Nos. 1A in Appeal No.63 of 2007.