Arbitral tribunal, even if composed of family elders, must follow natural justice principles: Madras High Court

The Madras High Court recently held that even when an arbitral tribunal comprises family elders or laypersons, compliance with the principles of natural justice remains non-negotiable [M Maher Dadha v. Mohanchand Dadha & Ors].

Single-judge Justice Anand Venkatesh ruled that the failure to afford a fair opportunity of hearing to one of the parties vitiates the award under Section 34 of the Arbitration and Conciliation Act, 1996.

"Whatever may be the composition of the Arbitral Tribunal namely a legally trained mind or lay person or family elders, following the principles of natural justice is non negotiable," the judge ruled.

The observation was made while setting aside a 2005 arbitral award passed by family members of the Dadha business family

Brothers Maher and Mahendra Dadha had entered into an arbitration agreement on May 10, 2005, referring disputes relating to Hindu United Family, L Milapchand Dadha & Sons, and three family companies—Dadha Estates Pvt Ltd, Dadha Securi Lockers Pvt Ltd, Dadha Brothers Ltd, and Alle Chemicals Pvt Ltd—as well as a Hindu United Family, L Milapchand Dadha & Sons, to an arbitral tribunal comprising three family elders.

The elders, who were also uncles of the disputing parties, passed an award on October 9, 2005 directing, among other things, equalisation of investments between the two groups and payment of ₹5.34 crore by the Maher group to the Mahendra group.

Maher Dadha challenged the award before the High Court under Section 34. He argued that the arbitrators failed to provide a proper hearing and relied on unaudited accounts.

Justice Venkatesh noted that while courts must assess awards passed by laypersons or family elders differently from those passed by legally trained minds, procedural fairness cannot be diluted.

Referring to his earlier judgment in SIPCOT v. RPP Infra Projects Ltd., the judge reiterated that such awards cannot be expected to measure up to the reasoning quality of a legally trained mind but must still satisfy the test of fairness and opportunity.

The Court found that Maher Dadha had, through a letter dated October 1, 2005, had requested the arbitrators to postpone a meeting fixed for October 3 since he was unable to attend. However, the tribunal proceeded to pass the final award on October 9–10, 2005 without hearing him.

“The petitioner was not given an opportunity to present his case at a very crucial stage of the proceedings… This certainly amounts to violation of the principles of natural justice,” the Court held.

Hence, the Court concluded that the award was in conflict with public policy under Sections 34(2)(a)(iii) and 34(2)(b)(ii) of the Arbitration Act.

Justice Venkatesh allowed the plea to set aside the award while giving liberty to the parties to return to the same family elders for fresh arbitration if they so desired.

“The arbitrators, being the elders of the family, can give an opportunity to both parties and take a decision keeping in mind the overall interest of the family,” the Court said.

M Maher Dadha was represented by advocate H Karthik Seshadri of M/s Iyer and Thomas.

M Mahendra Dadha and Snehalatha Dadha were represented by advocate Gautam S Raman

[Read Judgment]