 "HC declines to appoint arbitrator in disputes with prior arbitration claims")
The Delhi High Court recently declined to appoint an arbitrator in a dispute where the claims had already been the subject of a prior arbitration reference, reinforcing the sanctity of the finality of arbitration awards.
The judgment, delivered by Justice Subramonium Prasad of the Delhi High Court, holds significance due to the lack of clarity on whether claims can continue to be re-arbitrated after an award has been set aside.
It is a step forward in strengthening the arbitration process and ensuring the finality that such proceedings deserve, the court observed.
"This Court is of the view that it is the duty of the Referral Court, especially at the post-award stage, to protect parties from being forced to arbitrate when the matter is demonstrably non-arbitrable. This is especially relevant considering one of the primary rationales behind the enactment of the Act of 1996 (Arbitration Act) was to ensure speedy justice and bring finality to ongoing disputes, even if a party remains dissatisfied with the verdict," the order stated.
In this case, an arbitral award had previously been set aside under Section 34 of the Arbitration and Conciliation Act by the Delhi High Court. The court found that the arbitral tribunal's reasoning lacked evidence to support the claimant’s (Jaiprakash Associates Limited-JAL) claims.
Despite this, the tribunal granted the claims based on principles of equity, which the court ruled violated the Act. The Act permits an arbitral tribunal to decide ex aequo et bono (on the basis of equity) only when expressly authorised by the parties.
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As a result, the tribunal's award regarding JAL’s claims was entirely set aside. However, the NHPC’s counterclaims, as awarded by the tribunal, were affirmed. In another round of proceedings, the Delhi High Court partially enforced the award, limiting it to the counterclaims granted in NHPC’s favour.
Subsequently, JAL requested NHPC to appoint its nominee arbitrator to constitute an arbitral tribunal and adjudicate the underlying dispute afresh. JAL relied on the Section 34 orders, asserting that since the award had been set aside, the underlying dispute remained unresolved and required adjudication. NHPC, however, declined to appoint its nominee arbitrator, arguing that the dispute had already been adjudicated and had attained finality. JAL then filed a petition under Section 11 of the Arbitration and Conciliation Act.
The Delhi High Court refused to appoint an arbitrator in the dispute, emphasising that such action would lead to an endless cycle of arbitration, contrary to the principle of res judicata. The court held that this approach would undermine the sanctity of the arbitration process, as the re-adjudication of disputes, as proposed, was neither permissible under the Arbitration and Conciliation Act nor supported by legal principles.
The court further noted that allowing a post-award Section 11 petition in such cases would leave the finality of arbitration awards in perpetual limbo.
"This Court cannot be expected to act mechanically merely to deliver a purported dispute raised by an applicant to an arbitrator. In situations such as this, where an award has been set aside and the aggrieved party seeks to initiate another round of arbitration to take a second bite at the cherry, the process of the court could be abused by parties litigating endlessly. This completely undermines the aim and objective of the Act of 1996. If such practices are encouraged, the finality of an award would always remain in limbo," the order stated.
The Delhi High Court’s ruling highlighted the need for greater clarity on whether disputes, once adjudicated and set aside under Section 34, can be re-referred to arbitration, and under what circumstances, if any, such a course of action would align with the law.
Counsel for the petitioner, Jaiprakash Associates Limited, included Senior Advocate Lovkesh Sawhney and Advocate Rohit Kumar.
Counsels for the respondent, NHPC Ltd, included Gauhar Mirza (Partner), assisted by Hiral Gupta (Principal Associate), Sukanya Singh (Senior Associate), and Rohit Rahar (Associate) of Cyril Amarchand Mangaldas.