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Browse Law School Education ADR: Arbitration Important Arbitration Cases

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Now we’ll take up the case of Chandok Machineries v. M/s S.N. Sunderson & Co., (2018) SCC Online Del 12782—a 2018 case.

BRIEF FACTS:

The parties entered into two sets of Memorandums of Understanding, in respect of work carried out at two mines in Katni District in the State of Madhya Pradesh. Following a change in the management of the respondent, the parties agreed to settle their accounts for the work already done and to carry on further work under fresh agreements to be executed. Consequently, two MOUs were executed (referred to as second MOU). The respondent sought to terminate the second MOU, which gave rise to the disputes between the parties.

Both MOUs contained arbitration clauses. The litigation between the parties commenced when the appellant filed a petition under Section 9 of the Act before the District Court at Katni District, Madhya Pradesh. The said Court disposed of the petition holding that the appropriate forum for relief, was the courts in Delhi as the seat of the proposed arbitration as per the agreement was in Delhi. Although this order was challenged before the Madhya Pradesh High Court, the appeal was rendered to be infructuous.

The appellant invoked arbitration clause. The Court appointed, a presiding arbitrator, in addition to the arbitrators nominated by the parties. The Tribunal's proceedings culminated in an award, just prior to the date on which the mandate of the Tribunal was terminated. The award was signed by two of the three arbitrators. The third arbitrator signed the award fifteen days after the mandate of the tribunal had been terminated. By a subsequent order, while disposing of an application filed by the respondent under Section 33(1)(a) of the Act, the Arbitral Tribunal gave reason for the late signing of the award by the third arbitrator.

The appellant approached the Delhi Court under Section 34 of the Act for setting aside the award. One of the grounds for appeal was that the mandate of the Tribunal having terminated, the award which was signed by the third arbitrator after the termination and dispatched to the parties was non est. Another ground for appeal was that the claims granted by the Tribunal were beyond the terms of reference as the Tribunal had considered claims for the period prior to the execution of the second MOU.

The learned Single Judge rejected the contentions in the impugned order, which led to the present appeal.

ISSUES:

The issues raised in this case were:

  1. Whether signing of the award after termination of the Tribunal’s mandate vitiates the award?
  2. Whether the Tribunal acted beyond the scope of its reference?

HELD:

Regarding signing of award after termination of the Tribunal’s mandate, the Delhi High Court interpreted the provisions of Sections 29, 29A, 31 and 33 of the Arbitration and Conciliation Act, 1996. The Court held that as far as the substantive decisions of the Arbitral Tribunal are concerned, Section 29(1) of the Act clearly provides that an award made by a majority of the members prevails. Although Section 31(1) requires the award to be signed by the members of the tribunal, Section 31(2) provides for a contingency where the award is not signed by all the members of the tribunal, but a majority thereof. The Court was of the view that the absence of a minority of the members of the tribunal, for whatever reason, does not necessitate a fresh round of litigation; if a majority of the tribunal [whose decision would, in any event, prevail by virtue of Section 29(1)] is available to sign the award. In this regard the Court relied on the judgement in the case of Moti v. Sheroo, which is a (2009) 6 Maharashtra Law Journal 535 (paragraph 16) case, wherein the Bombay High Court held as follows:

"Where an award has been signed by a majority of the arbitral Tribunal that award constitutes in fact and in law an award of the arbitral Tribunal. The omission of one of the Arbitrators to sign the award, or for that matter, to deliver his or her award would not affect the legitimacy or validity of the award of the majority. Nor for that matter does the fact that one of the Arbitrators has delivered a dissenting award affect the validity of the award of the majority. The Act now places the matter beyond doubt by providing that what is required in law for a valid award is an award of the majority constituting the tribunal. The reasons for the omission of the signature of the Arbitrator has to be stated.”

Regarding the scope of reference before the Arbitral Tribunal, the Court held that since the appellant had not challenged the jurisdiction of the Tribunal in respect of the claim in question, either in its pleadings or by way of an application under Section 16 of the Act the Tribunal was justified in rejecting the objection of the appellant as to the scope of the reference before it. The Court also observed that the appellant has maintained a single account in respect of transactions under both the MOUs, which has been debited and credited continuously by the appellant in respect of both the MOUs.

Hence, the appellant's contentions regarding the scope of the reference was held to be untenable.

RATIO:

Now if we derive the ratio here—Absence of a minority of the members of the tribunal, for whatever reason, does not necessitate a fresh round of litigation; if a majority of the tribunal [whose decision would, in any event, prevail by virtue of Section 29(1)] is available to sign the award.

A procedural irregularity of this nature ought not to vitiate the entire decision-making process, particularly when it is capable of being cured.

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