Arbitration may rhyme with “arbitrary,” but it cannot result in an arbitrary measure, the Supreme Court said, scrapping an arbitral proceeding after a tribunal went ahead with sweeping interim orders despite an objection to its appointment and allegations of links with one of the parties.
The respondent claimed that the tribunal had been appointed with the consent of the parties. The Supreme Court noted that the record contained nothing to establish that the appellants had given such consent. The petitioner had, in fact, objected to the tribunal’s appointment after receiving its communication, specifically alleging that the tribunal members had close links with the respondent. The Supreme Court found that the problem went to the root of the arbitral proceedings. The court consequently set aside the high court’s order and declared the initiation of the arbitration proceedings non est in law. It also quashed all three interim orders. The bench directed that any money transferred from the appellants’ accounts to the respondent’s account pursuant to the interim orders must be returned within one week. The question of interest on such amounts was left to be considered by the fresh arbitrator appointed by the Supreme Court. The court also ordered restoration of any movable or immovable property taken over or attached pursuant to the quashed orders.
Despite the objection, the court noted the tribunal proceeded to pass three interim orders under Section 17 of the Arbitration and Conciliation Act, 1996. Arth’s challenge in the high court was dismissed on limitation, noting that no application had been filed seeking condonation of delay under Section 5 of the Limitation Act.
The court termed the interim orders, which included freezing multiple bank accounts, permitting the respondent bank to take possession of the appellants’ movable and immovable properties and directing the transfer of their bank deposits to the respondent, as “arbitrary in nature”. “Arbitration, though rhymes with it, cannot result in an arbitrary measure, even in the appointment of an Arbitral Tribunal,” said the bench in a September 17 judgment. “We have to remind ourselves that this was done in the wake of the clear objection to the appointment of the Arbitral Tribunal and the allegation of bias raised against the said Arbitral Tribunal…The orders passed at the first instance are also arbitrary in nature,” it noted.
