In a significant judgment, the Delhi High Court addressed the implications of procedural irregularities in the appointment of arbitrators within the context of international commercial arbitration. The court held that the appointment of an arbitrator by the Chief Justice of a High Court, instead of the Supreme Court as mandated by Section 11(6) of the Arbitration and Conciliation Act, 1996, does not inherently invalidate the resulting arbitral award. This decision underscores the principle that objections to procedural deviations must be timely raised during arbitration proceedings; failure to do so constitutes a waiver of such objections.
Case Background
The dispute involved cross-petitions filed under Section 34 of the Arbitration and Conciliation Act, 1996, challenging an arbitral award. The award directed the petitioner to pay the respondent US $104,190 with interest, in exchange for the transfer of 643,865 equity shares of the petitioner's company to the respondent. The petitioners contended that the arbitrator's appointment was invalid, arguing that since the dispute pertained to international commercial arbitration, only the Supreme Court possessed the jurisdiction to appoint the arbitrator under Section 11(6) of the Act. They asserted that the appointment by the Chief Justice of the High Court was void ab initio, rendering the award liable to be set aside.
Legal Issues Examined
The court examined three pivotal issues:
Compliance with the Arbitration Act: Whether the arbitrator's appointment adhered to the provisions of the Arbitration and Conciliation Act, 1996.
Impact of Procedural Irregularity: Whether the appointment of the arbitrator by the High Court, instead of the Supreme Court, invalidated the arbitral award.
Timeliness of Objections: Whether the petitioners were precluded from raising this objection at the stage of challenging the award, given their failure to object during the arbitration proceedings.
Court's Analysis and Findings
1. Compliance with the Arbitration Act
The court acknowledged that, per Section 11(6) of the Arbitration and Conciliation Act, 1996, in matters of international commercial arbitration, the authority to appoint an arbitrator resides with the Supreme Court. In this case, the arbitrator was appointed by the Chief Justice of the High Court, which constituted a procedural irregularity. However, the court emphasized that such an irregularity does not automatically vitiate the arbitral award.
2. Impact of Procedural Irregularity
Drawing upon the Supreme Court's decision in Narayan Prasad Lohia v. Nikunj Kumar Lohia, the court highlighted that procedural defects in the appointment process do not necessarily invalidate an arbitral award. The key consideration is whether the irregularity resulted in a failure of justice or caused prejudice to the parties. In the absence of demonstrated prejudice, the award remains valid despite procedural lapses.
3. Timeliness of Objections
The court noted that the petitioners did not raise any objections regarding the arbitrator's appointment during the arbitration proceedings. Citing Section 4 of the Arbitration and Conciliation Act, 1996, the court observed that a party that proceeds with arbitration without promptly stating objections to procedural irregularities is deemed to have waived the right to object. Therefore, by failing to raise the issue at the appropriate time, the petitioners forfeited their right to challenge the award on this ground.
Conclusion
The Delhi High Court's ruling reinforces the principle that procedural irregularities in the appointment of arbitrators do not automatically invalidate arbitral awards, especially when no prejudice is demonstrated, and objections are not timely raised. This judgment underscores the importance of promptly addressing procedural concerns during arbitration proceedings to preserve the integrity and finality of arbitral awards.
0 Comments
Thank you for your response. It will help us to improve in the future.