Delhi High sets aside ex-parte Arbitral Award due to lack of proper communication by Arbitrator

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  5. Delhi High sets aside ex-parte Arbitral Award due to lack of proper communication by Arbitrator

The Delhi High Court recently set aside an ex-parte Arbitral Award on the ground that the Arbitrator failed to issue proper communication to the party before proceeding ex-parte against it. Additionally, the Arbitrator failed to make adequate efforts to examine whether the absence of the party was with or without showing sufficient cause.

The case in question involved a Gas Sale Agreement between M/s Mittal Pigments Pvt Ltd, the petitioner, and M/s GAIL Gas Ltd, the respondent. After certain disputes arose between the parties, GAIL invoked the Arbitration Clause contained in the Agreement and an ex-parte Arbitral Award was passed in favor of the respondent. Mittal Pigments challenged the ex-parte Award by filing a petition under Section 34 of the Arbitration and Conciliation Act, 1996 (A&C Act) before the Delhi High Court.

Mittal Pigments argued that sufficient notice was not served upon it before the arbitral proceedings were proceeded against it ex-parte. It further contended that the Arbitrator passed an unreasoned order, summarily allowing the claims of the respondent, GAIL, without sufficient cause or elaborate analysis.
Referring to the facts of the case, the bench observed that the petitioner, in its reply to the arbitration notice, had intimated the respondent, GAIL, that it had initiated proceedings against GAIL in the District Court in Rajasthan and, therefore, the petitioner could not participate in the arbitral proceedings. The Court took note that the petitioner had received a notice from the Arbitrator only once, calling upon it to appear for the arbitral proceedings, before the Arbitrator proceeded ex-parte against it.

The Delhi High Court held that under the A&C Act, it has always been preferred and encouraged that an Arbitrator provides a pre-emptory notice to any party against whom it is seeking to proceed ex-parte, even though the same has not been stipulated under the A&C Act in clear terms. The court added that the fact that a suit pertaining to the same issue was pending between the parties, was in itself a sufficient cause for the Arbitrator not to proceed ex-parte against the petitioner after giving it only one intimation and opportunity to appear for the arbitral proceedings.

The Court also remarked that recording of reasons for the findings made in the Award is an indispensable requirement. Perusing the Arbitral Award under which the claims were decided in favor of the respondent, GAIL, the Court said that the order was a mere four-page order reiterating the claims of the respondent and making the summary findings while accepting the said claims. The order does not reveal appreciation of evidence or material or record and also does not lay down the grounds taken for the decision made.
The bench concluded that the Arbitral Award was passed without proper communication to the petitioner before proceeding ex-parte and without affording reasonable opportunity to present its case. The learned Arbitrator did not make adequate efforts to be satisfied that sufficient cause was to be shown for non-appearance before proceeding ex-parte against the petitioner.

The decision of the Delhi High Court highlights the importance of proper communication by an Arbitrator before proceeding ex-parte against a party. It also emphasizes the requirement of recording reasons for the findings made in the Award. The decision will have a significant impact on future cases, and it will remind Arbitrators of their duties and responsibilities while conducting arbitral proceedings.