Arbitrators when deviating from agreed procedure duty bound to give opportunity to parties to present their case: Madras High Court

The Madras High Court recently held that while arbitral tribunals have the liberty to apply their own expertise and knowledge to arrive at a conclusion, they are duty-bound to provide the parties involved an opportunity to present their case, particularly when they deviate from already agreed procedure. [M/s. Transtonnelstroy – Afcons (JV) v CMRL] .Relying on various precedents, including Ssangyong Engineering and Construction Company Limited Vs. NHAI, the Court added that parties shall be given full opportunity to present their case under Section 18 of the Arbitration Act.Pertinently, if any material is taken behind the back of the parties by the arbitral tribunal, thereby deviating from standard procedure, the parties must be given an opportunity to comment on the same. Failing to provide such an opportunity would amount to the party being made unable to present its case and such a scenario is a material ground to challenge the arbitral award, the Court said. .These observations was made in a judgment passed on February 1 by a bench of Acting Chief Justice T Raja and Justice D Bharatha Chakravarthy. The Court was adjudicating a batch of appeals filed by CMRL and Transtonnelstroy-Afcons, a joint venture that had entered into an agreement with CMRL for carrying out construction work for certain Chennai metro rail stations. Disputes arose after Transtonnelstroy allegedly failed to deliver by the due date as originally agreed upon by the parties. The parties opted for arbitral proceedings to settle the dispute. The arbitral tribunal ruled in favour of Transtonnelstroy.CMRL then challenged the tribunal order before the High Court, claiming that the arbitrators had deviated from the agreed procedure and conducted their own analyses to conclude that Transtonnelstroy was entitled to seek an extension of time for completing the project. CMRL further argued that the Tribunal had, thereby, failed to grant it an opportunity to present its case on certain aspects before arriving at such a conclusion.A single-judge order passed in the matter was challenged by both CMRL and Transtonnelstroy before the High Court division bench.Transtonnelstroy sought quashing of the single judge's order and prayed that the original arbitral award be confirmed. On the other hand, CMRL challenged only a portion of the single-judge order, where the judge had directed the parties to go back to the Tribunal to prove some of their claims.Notably, the appeals involved allegations that the arbitral tribunal had relied on unmarked documents, behind the back of the parties and without giving them an opportunity to comment on the same.The division bench, while considering these appeals, noted that the Tribunal had called for such unmarked records after reserving the matter for orders. It further observed that the Tribunal had failed to inform either of the parties about the purpose of collecting such records and had merely emailed both the parties calling for the records..The Court said that such an email calling for the records could not be considered as granting the parties an opportunity when they had been kept in the dark about the purpose of calling for such records. "Therefore, having found the necessity of the said documents, simply calling for the documents without divulging the reasons therefor, after reserving the case for orders and after their internal deliberation, clearly amounts to taking these materials behind the back of the parties. The E-Mails of both the Tribunals are extracted supra. It can be seen that there is absolutely no whisper whatseover as to what for the materials were called for. Mere marking a copy of the mail to both sides, does not amount to grant of opportunity, when the parties had no idea or clue as to what the purpose was," the High Court said. Such an award was, thus, liable to be set aside under Section 34(2)(a) of the Arbitration and Conciliation Act, 1996, the High Court concluded. "The above self-anointed exercise of the Tribunal forms the very basis of the award. It cannot be said that the Tribunal was unaware of the requirements of opportunity for the parties to present their respective cases, as it can be seen from its own order extracted supra when it marked Ex.R-301. A detailed oral evidence procedure has been agreed upon in the preliminary hearing itself. This kind of informal calling for evidence and acting upon it without even marking them as Exhibits certainly amounts to a departure from the agreed procedure, behind the back of the parties and has caused huge prejudice to the other side. A duty is enjoined on the Tribunal to provide the parties of an opportunity to comment on matters when it decided to deviate from the already agreed procedure of evaluating the case of the parties on the basis of evidence adduced, both oral and documentary and to adopt the method of technical evaluation by its own expertise, which would be clear from the passages extracted by the Hon'ble Supreme Court of India in paragraph No.53 of Ssangyong (cited supra). Therefore, the error on part of the Tribunal is grave in nature," the High Court said. .The division bench, therefore, upheld the part of the single bench order that had set aside the arbitral awards. Further, the Court clarified that in the present case, since the award was already set aside, the parties must be given the liberty to commence "de novo proceedings in the manner known to law" rather than be sent back to the arbitral tribunal to continue the earlier adjudication. Senior Counsel G Masilamani and Vijay Narayan and advocate D Balaraman appeared for Transtonnelstroy-Afcons. Additional Solicitor General N Venkataraman, Senior Counsel Yashodvaradhan, and advocate SS Arjun appeared for CMRL.[Read Judgment]