Court quashes Arbitral Award for improper appointment and dual role violation

The court quashed the Arbitral Award and associated execution proceedings due to the unilateral appointment of the Arbitrator without mutual consent, the dual role of the Arbitrator as an Advocate for one party, and the lack of participation by the Petitioners in the arbitration proceedings. The court emphasized the importance of mutual consent in Arbitrator appointments and the prohibition of an Arbitrator acting as an Advocate for one party. The Petitioners' objections were upheld, and the judgment was in their favor without any order as to costs.

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Issues Involved:
1. Unilateral appointment of Arbitrator
2. Dual capacity of Arbitrator and Advocate
3. Requirement of consent for appointment of Arbitral Tribunal
4. Legality of the Arbitral Award
5. Non-participation in arbitration proceedings
6. Costs associated with the arbitration proceedings

Detailed Analysis:

1. Unilateral appointment of Arbitrator:
The Petitioners challenged the ex parte award under Section 34 of the Arbitration and Conciliation Act, 1996, arguing that the Respondents unilaterally appointed Advocate Shri Shailendra S. Gandhi as the Arbitrator without their consent. The Petitioners contended that such a unilateral appointment was impermissible and contrary to the terms of the contract and the law.

2. Dual capacity of Arbitrator and Advocate:
The Arbitrator, who was also the Advocate for the Respondents, replied to the Petitioners' objections in a manner resembling that of an Advocate defending his client. This dual capacity was deemed impermissible, as the Arbitrator acted both as an Advocate and as an Arbitrator, which is against the basic provisions of the Arbitration Act and the principles of natural justice.

3. Requirement of consent for appointment of Arbitral Tribunal:
The arbitration clause required the appointment of a sole Arbitrator by mutual consent. The Petitioners' consent was never obtained, making the unilateral appointment of the Arbitrator invalid. The Arbitrator's role is limited to fixing meetings and not dealing with the merit of the matter on behalf of one party.

4. Legality of the Arbitral Award:
The Arbitrator directed the Petitioners to provide a flat or pay compensation/liquidated damages of Rs. 77,50,000 with interest. The award was based solely on the Respondents' documents and statements, without any supporting evidence or material. The Arbitrator failed to consider the Petitioners' objections and the pending appeal before the National Consumer Commission. The award was deemed contrary to the provisions of the Arbitration Act, Evidence Act, Code of Civil Procedure, and principles of natural justice.

5. Non-participation in arbitration proceedings:
The Petitioners did not participate in the arbitration proceedings, arguing that the initiation and appointment of the Arbitrator were contrary to the settled principles of arbitration law. The court found that the Petitioners' non-participation was not deliberate but due to the illegal inception and invocation of the arbitration proceedings. The award was quashed as it was unsustainable and perverse.

6. Costs associated with the arbitration proceedings:
The Petitioners sought costs for the arbitration proceedings, including court fees of Rs. 75,000. However, the court did not award costs due to the delay in pursuing the arbitration petition. The execution proceedings initiated by the Respondents were also quashed along with the award.

Conclusion:
The court quashed and set aside the Arbitral Award dated 14.08.2010 and the execution proceedings arising from it. The Petition was allowed without any order as to costs. The judgment emphasized the importance of mutual consent in the appointment of Arbitrators and the impermissibility of an Arbitrator acting as an Advocate for one party.

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