Madras High Court slaps ₹1 lakh costs for "worthless" appeal, warns against impleading arbitrators

Arbitrators or members of arbitral tribunals are utterly unnecessary parties unless there are specific, personal allegations that they have to answer, the Court held.
Madras High Court slaps ₹1 lakh costs for "worthless" appeal, warns against impleading arbitrators
Arbitration

Terming it a complete waste of time, the Madras High Court on Wednesday imposed ₹1 lakh as costs on an appellant who had challenged an order passed by an arbitration court which dismissing a challenge to an arbitral award (Kothari Industrial Corporation Ltd. v. M/S Southern Petrochemicals Industries and anr).

The appellant has been asked to pay ₹50,000 to the respondent and a further ₹50,000 to the Tamil Nadu Legal Services Authority (TNSLA) within a month.

The Court also took the opportunity to reiterate that arbitrators must not be impleaded in such appeals unnecessarily, unless it is a rare case where personal and specific allegations have been made against the arbitrator.

"It is a pernicious practice in this court to implead arbitrators or arbitral tribunals when there is no need to do so. Often, arbitrators are embarrassed upon receipt of notice. It is only in a rare case when a personal allegation is made against an arbitrator may such arbitrator be impleaded." the Court said.

It went on to explain that just as lower courts or judges manning such courts are not impleaded as parties in revision petitions or appeals, arbitrators or members of arbitral tribunals are utterly unnecessary parties unless there are specific, personal allegations that they have to answer.

A Bench of Chief Justice Sanjib Banerjee and Justice PD Audikesavalu was hearing an appeal against a February 23, 2021 order passed by an arbitration court which had declined to set aside a September 2017 arbitral award challenged under Section 34 of the Arbitration and Conciliation Act.

The Court observed that once appropriate tests are applied at the stage of deciding an application under Section 34 (application for setting aside arbitral award), there is very little room for an appellate court to interfere with the order.

While doing so, the Court took critical note that the litigants appeared to be taking a chance by not accepting the finality of arbitral award and questioning the same on specious grounds by invoking Section 34. Thereafter, worthless challenges are pursued against the order of dismissal of a Section 34 application, the Court added.

The Bench went on to observe that one of the principal grounds why litigants are encouraged to adopt this route and clog up the Court with such undeserving matters was the reluctance of the Court concerned to award appropriate costs.

In the instant case, the Court found that both the challenge to the arbitral award and the challenge to the arbitration court's dismissal of the Section 34 application were worthless and a complete waste of time.

The contention of the appellant that the arbitrator did not look into the matter properly flies in the face of at least twenty pages of discussion in the award, the Court said.

The Court observed that the arbitration court had found that the arbitrator had applied his mind and dealt with all three issues raised by the appellant, i.e. on maintainability, limitation and merits. As such, the arbitration court had found adequate reasons furnished in the arbitral award under challenge.

Affirming the arbitration court's decision not to interfere with the arbitral award, the Court remarked that the scope of interference under Section 34 of the Arbitration Act is limited. In such cases, the Court does not sit in appeal and is not expected to re-appreciate evidence, the Bench reiterated. It is judicially appreciated that the arbitrator is the final authority on the quality and quantity of evidence, the Court said.

With these, among other observations, the Bench concluded that the February 2021 judgment of the arbitration court did not call for any interference. The September 2019 arbitral award was found to be perfectly justified and in order.

However, for the appellant's "inglorious efforts" in the High Court, it was directed to pay costs of ₹ 1 lakh (in total) with a month.

[Read Order]

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Kothari Industrial Corporation Limited v. .M:s.Southern Petrochemicals Industries.pdf
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