High Court overturns Trial Court order in arbitration case due to Arbitrator's misconduct

The High Court set aside the Trial Court's order remitting an arbitration case back to the Arbitrator, citing the Arbitrator's misconduct for not considering counterclaims in the initial award. The High Court applied res judicata principles, barring the appellant's second claim petition due to issues not raised in the first arbitration. The Arbitrator's failure to address counterclaims led to the first award being set aside, with the Supreme Court affirming the High Court's decision and ordering the appellant to pay costs of Rs. 5,000.

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Issues Involved:
1. Review of the Trial Court's order.
2. Applicability of res judicata and constructive res judicata.
3. Misconduct of the Arbitrator.

Summary:

1. Review of the Trial Court's Order:
The High Court set aside the Trial Court's review order, which had initially remitted the arbitration case back to the Arbitrator for fresh consideration of counterclaims. The High Court held that the Arbitrator's failure to consider the counterclaims in the first award constituted misconduct. The Trial Court's review order was deemed unsustainable as there was no apparent error or sufficient reason for review u/s 114 and Order 47, Rule 1 of the Code of Civil Procedure.

2. Applicability of Res Judicata and Constructive Res Judicata:
The High Court ruled that the principles of res judicata and constructive res judicata apply to arbitration proceedings u/s 41 of the Arbitration Act. The appellant's second claim petition was barred by these principles because all disputes arising from the contract termination should have been raised in the first arbitration case. The High Court's decision to set aside the second award was upheld, as the appellant was precluded from seeking a second reference.

3. Misconduct of the Arbitrator:
The Arbitrator was found to have misconducted himself by not considering the counterclaims in the first award. The High Court correctly set aside the first award and directed the Arbitrator to dispose of the reference in accordance with law, considering both the claims and counterclaims. The Arbitrator's failure to do so rendered the award illegal and unwarranted.

Conclusion:
The Supreme Court dismissed the appeals, affirming the High Court's judgment and order dated April 10, 1987. The appellant was ordered to pay costs quantified at Rs. 5,000.

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