Validity of an Ex- Parte Ad Interim Relief in an Arbitration Proceeding

This is authored by Kaustubh Shrinarain of Symbiosis Law School, Noida

In the recent judgment of Godrej Properties Ltd. v. Goldbricks Infrastructure Pvt. Ltd., the Bombay High Court ruled that an interim relief sought by the parties under Section 17 of The Arbitration and Conciliation Act, 1996 (for short ‘A&C Act’) cannot be granted by the arbitral tribunal proceeding ex-parte without giving proper notice to the other party. The Act allows a party to approach the arbitral tribunal during the course of arbitration proceedings for the grant of an interim measure prescribed under Section 17(1) of the A&C Act and the tribunal can order any such measure in favour of the applicant as it deems fit. However, by way of this judgement, an ex-parte relief granted by the tribunal was struck down in light of the principles of natural justice.

The aforementioned judgement is analyzed under two parameters, beginning with the procedural history of the case, followed by the contentions of the parties and the ruling of the Court. The next part critiques the judgement, and argues: firstly, that although the Act confers the power to proceed ex-parte on the tribunal it also prescribes certain bars that the tribunal has to adhere to; secondly, the ruling of the HC is in conformity with the jurisprudence on the issue.

PART I

Procedural History of the Case

An application under Section 37 of the A&C Act was filed by Godrej Properties Ltd. (for short ‘Appellant’) before the High Court against ex-parte ad-interim relief granted to Goldbricks Infrastructure Pvt. Ltd (for short ‘Respondent’) by a Sole Arbitrator under Section 17 of the A&C Act. The background of this impugned order by the arbitrator was that two applications praying for interim relief were already pending and were reserved for orders to be passed by the arbitrator. Pending the order of the tribunal on these applications, another Section 17 application was filed, of which the arbitrator took suo moto cognizance and passed an ex parte ad-interim order against the Appellant. The Respondent pled that they were compelled to move this application as the Appellant was arbitrarily trying to balance the inventories without sharing the gross sales revenue of the disputed project. Although the issue pertaining to the entitlement of the Appellant was pending, the relief was granted anyway by the arbitrator, restraining the Appellant from acting against the disputed subject matter.

Contentions of the Parties

The Appellant pled that: firstly, it is the requirement of the law, by virtue of Section 18 read with Section 24(2) of the A&C Act, for both the parties in a proceeding to be treated equally and full opportunity of hearing to be given to them. Secondly, grant of ex-parte interim relief was not prayed for, instead the prayer merely entailed a request for fixing an early date for a hearing. Additionally, assuming but not admitting, even if the prayer entailed any such relief, the mandate of Order 39 Rule 3 of Civil Procedure Code, 1908 (of giving prior notice to the other party before granting an injunction), was not followed. Lastly, Article 17B (1) of UNCITRAL Model Law, prescribes that a party can make a request for an interim relief without furnishing notice to any other party. However, the Indian Legislature departed from such provision and has not included the same under the ambit of Section 17 of the Act. This digression primarily highlights the legislative intent of giving an equal opportunity of being heard to both the parties and keeping the principles of natural justice at the heart of the Act.

On the other hand, the Respondent pled that, firstly, the interim relief application under Section 17 of the A&C Act was filed to prevent the appellant from frustrating any future orders to be passed by the tribunal in the pending interim applications. Secondly, reference was made to the impugned order and it was contended that the tribunal has already heard the party on the initial applications. Thirdly, the learned arbitrator recorded that he was persuaded by the consideration that the facts set out in the application call for status quo being maintained till the application is heard and lastly, the parties will be heard on the adjourned date and therefore the appeal ought to be dismissed.

Ruling of the Court

The Bombay High Court, on hearing both the parties at length, ruled that interim relief sought by the parties under Section 17 of the A&C Act cannot be granted by the arbitral tribunal proceeding ex-parte without giving proper notice to the other party.

PART II

Critique of the Judgement

Statutory scheme for ex-parte Awards/Orders

The Act does not impose an absolute bar on an ex-parte proceeding. Although it is not bound by the Civil Procedure Code, 1908 by virtue of Section 19(1) of the A&C Act, as ruled in the case of Impex Corporation v. Elenjikal Aquamarine Exports Ltd., it is the duty of the tribunal to exercise due care and caution while proceeding ex-parte. For instance, the arbitrator can proceed ex-parte even to the extent of passing an award on the respondent’s failure to file the statement of defence, failure to appear at oral hearings, or failure to produce documentary evidence under Section 25 of the A&C Act. This principle was considered in Lohia Jute Process Pvt. Ltd. v. New India Assurance Co. Ltd. and is also statutorily recognized under Section 25(c) of the A&C Act.

The A&C Act postulated that on the failure of the respondent to file the statement of defence, the tribunal shall continue the proceeding without treating the failure in itself as an admission of claims. However, this position was later amended by the 2015 amendment to the A&C Act under which in addition to the stated postulation, a discretion of the tribunal to treat the right of the respondent to file a statement of defence as forfeited was added.

On the other hand, under Section 25 of the Act, the ‘test of sufficient cause’ has to be adjudicated upon by the tribunal before passing an ex-parte award and the terminology ‘sufficient cause’ deserves a liberal interpretation in light of justice and fair play, as held in the case of State of West Bengal v. Howrah Municipality. It can be fairly reasoned that in case of a default, if that party is successful in proving the sufficient cause for that default, then the tribunal is bound to give time to the defaulting party instead of passing an ex-parte award as the objective of the Act is to effectively resolve disputes rather than making them cumbersome.

Jurisprudence on ex-parte proceedings

In Indian Iron & Steel Company v. Satna Store, it was observed that an ex-parte award should be passed with due care and diligence as there lies no appeal against it, neither review nor revision. However, on the other hand, an interim measure granted or refused to be granted by the tribunal under Section 17 is appealable under Section 37 of the A&C Act.

More than anything, with respect to the ex-parte award, it has to be seen whether the party is acting deliberately with mala fide intentions to delay and avoid proceedings. If yes, then the tribunal should proceed ex-parte, as arbitration proceedings ought to be time-bound and there is no scope for any foul play by the parties. Therefore, ex parte orders can be passed when the Respondent is duly aware of the reason, place, date and time and still deliberately delays the proceedings. To summarize, though ex-parte proceedings have to be judiciously resorted to, there lies no absolute bar on them in respect to Section 25 of A&C Act.

Analysis of the High Court’s Ruling

The Bombay HC was correct in its findings, as providing equal opportunity to be heard is one of the core principles of natural justice. Correspondingly, the approach to be taken by the tribunal while proceeding ex-parte was detailed by the Karnataka High Court in the judgement of Rudramuni Devaru v. Shrimad Maharaj Niranjan Jagadguru, wherein the following was held in respect of the minimum requirement of a proper hearing:

1. each party must be furnished a proper notice of the hearing;

2. each party must be given a reasonable opportunity to present its case and be present throughout the hearing;

3. each party must have the reasonable opportunity to present statements, documents, evidence and arguments in support of its own case;

4. each party must be supplied with the statements, documents and evidence adduced by the other side;

5. each party must have a reasonable opportunity to cross-examine its opponent's witnesses and reply to the arguments advanced in support of its opponent’s case.

These situations must be read in conjunction with the captioned judgement as these are the basic requirements which should be followed by the tribunal. The Bombay High Court in the present matter clarified that the tribunal would not be permitted to pass an ex-parte ad-interim order on a Section 17 application without giving proper notice to the other party and accordingly, set aside the impugned order of the tribunal. In furtherance to this, it is essential to note that the power to grant an ex-parte interim relief is not prescribed under Section 17 of the A&C Act as the tribunal is obligated to treat the parties equally and give them equal opportunity to present their respective cases. This position of law is further strengthened by the digression of the legislature to not include the scheme of Article 17B (1) of UNCITRAL Model Law into the scope of Section 17 of the A&C Act. Therefore, it can be safely concluded that the scope of ex-parte proceedings falls under Section 25 of the A&C Act but not under Section 17 and the tribunal is prohibited by the scheme of A&C Act to proceed ex-parte. The present judgement of the Bombay High Court, along with the principles of fair hearing laid down in Rudramuni Devaru case, buttresses the same.

Conclusion

To conclude, the Bombay High Court reiterated the law of fair and proper hearing in the present case. The principles of natural justice are a part of the A&C Act by virtue of Section 18 read with Section 24(2) of the A&C Act and Article 18 of UNCITRAL Model Law, and the arbitrator is bound to act in conformity with the same.

Additionally, it is the author's opinion that the requirement of a fair and proper hearing as ruled in the case of Rudramuni Devaru would fairly apply to the present case of arbitrator’s fault to proceed ex-parte without giving prior notice. The conjunction of Sections 17, 18 and 24 of the A&C Act comes into play and makes it incumbent upon the tribunal to not proceed ex-parte without cause and to apply the rules of the principles of natural justice to every case. Further, the author distinguishes between the powers of the tribunal under Section 25 and Section 17 of the A&C Act, with both provisions being of different nature and effect. Section 25 comes into effect when there is an apparent default of the parties to comply with the statutory mandates of the A&C Act and gives the power to the tribunal to pass an ex-parte award, whereas Section 17 is an emergency provision, under which the party can seek interim relief from the tribunal, but the tribunal cannot proceed ex-parte. Both these provisions are distinct and the powers of the tribunal cannot be imported or read in conjunction with each other. This judgement has further clarified that the Arbitrator should act in accordance with the powers laid down in the A&C Act and is expressly barred in granting an ex-parte ad-interim relief without giving proper notice to the other party under Section 17 of the A&C Act.