SUPREME COURT EMPHASISES ON THE IMPARTIALITY OF THE ARBITRATORS UNDER A VALID ARBITRATION AGREEMENT

A three Judge Bench of Hon’ble Supreme Court comprising of Chief Justice of India Sanjiv Khanna, Justice Sanjay Kumar and Justice R. Mahadevan passed a judgement dated 09.01.2025 in State of Uttar Pradesh and Another v. R.K. Pandey & Another Civil Appeal no. 10212 of 2014 wherein the Hon’ble Bench held that a valid arbitration agreement is a pre-requisite to enforce the awards as per the laws.

Facts

Respondent No.1, Mr. R.K. Pandey was appointed as a Lab Assistant/Technician at the Dina Nath Parbati Bangla Infectious Disease Hospital, Kanpur (DNPBID or Hospital). Originally, the Hospital was under the management and control of Municipal Board of Kanpur. Later, it was transferred to the State Government of Uttar Pradesh in 1956 and subsequently became part of Ganesh Shanker Vidyarthi Memorial (GSVM) Medical College in Kanpur. This transfer included changes in administrative control, financial responsibility, and employment terms for the staff, who then became employees of the State Government rather than the municipal authority.

Upon the said takeover, employees of the Hospital were assured continuity of service benefits, including emoluments, retirement and other terms, which were consistent with their earlier employment conditions.

A Letter dated 09.01.1997, was issued by the Chief Medical Superintendent of the Hospital, to the Respondent No. 1, that his retirement would take effect from 31.03.1997. Subsequently, aggrieved by this Letter, the Respondent No. 1 filed a Writ Petition bearing no. CMWP-10623-1997 in March 1997 before the High Court of Judicature at Allahabad, seeking to extend his retirement age from 58 to 60 years, citing municipal service rules. No interim order was passed in the Writ Petition and the Petition was eventually withdrawn on 22-04-2009 by the Respondent No. 1.

Despite the withdrawal, Respondent No. 1 initiated arbitration proceedings under Section 11 of the Arbitration and Conciliation Act (Act) in 2008 for 2 disputed amounts separately, claiming the existence of an Arbitration Agreement dated 01.04.1957. The Appellants were not aware of this and the Respondent No. 1 surreptiously appointed, 2 sole Arbitrators in both matters and the Respondent No. 1 participated alone in the arbitration proceedings before the appointed arbitrators. Subsequently, the Award was given ex-parte and it was purported by the Respondent No. 1 that two ex-parte Awards were issued against the Appellants by the Arbitrators:

15. one for Rs. 26,42,116 with 18% annual interest dated 15.02.2008;
16. another for Rs. 20,00,000 with 9% annual interest dated 25.06.2008

Later, Respondent No. 1 sought enforcement of these Awards, leading to filing of objections under Section 34 (Application for setting aside arbitral awards) of the Act by the Appellants on grounds of the non-existence of the Arbitration Agreement and other procedural flaws. However, the contentions raised by the Appellants were dismissed by the Ld. Trial Court on the ground that they were barred by limitation.

Later, the Appellants appealed to the Division Bench of the High Court of Judicature at Allahabad which subsequently dismissed the intra court Appeal bearing no. FAFO-352-2012 on the grounds that the objections itself were barred by limitation and were beyond the condonable period.

Thus, aggrieved by the decision of the Hon’ble High Court dated 28.02.2012, the Appellants appealed to the Hon’ble Supreme Court of India.

Issues

• Whether there existed a valid Arbitration Agreement between the parties?
• Whether unilateral appointment of Arbitrators by the Respondent No. 1 was violating the principles of the Arbitration and Conciliation Act, 1996.

Decision of the Apex Court

The Apex Court held that the Arbitration process and the Awards dated 15.02.2008 and 25.06.2008 were fraudulent and thus, cannot be enforced. The Hon’ble Court noted that arbitration proceedings require valid arbitration agreement and impartial proceedings, neither of which were available in the present case.  It was observed that the alleged Arbitration Agreement could not be found in the records of either the Municipal Corporation or of the State of Uttar Pradesh. Hence, due to the absence of a valid Arbitration Agreement and lack of jurisdiction, the Awards were rendered void ab initio.

The Hon’ble Bench also noted that there was no piece of evidence placed by the Respondent No. 1 except for the fake Arbitration Agreement which was not even a certified copy or an authenticated copy of the official records.

The Hon’ble Court concluded that the Arbitration proceedings were entirely fraudulent and a deceptive act by the Respondent, who unilaterally got  arbitrators that issued ex-parte and invalid Awards. It further held that the Respondent was not a party to the alleged Arbitration Agreement as there were no signatures on the Agreement. Additionally, neither of the Appellants had recognized or supported the existence of such an Agreement.

Hence, The Hon’ble Court allowed the Appeal filed by the Appellants and dismissed the execution proceedings and clarified that enforcement cannot be sought for fraudulent awards.

Conclusion

The Apex Court held that arbitration is fundamentally based on the principle of party autonomy, which allows parties the freedom to select arbitration as an alternative to court proceedings. In this context, the existence of a valid arbitration agreement is essential for any award to be legally enforceable. Hence, the Apex Court declared the Arbitration Awards as null and void and awarded costs to the Appellants for the proceedings.

This judgment highlights the importance of adhering to legal procedures and rejecting fraudulent claims in arbitration to uphold justice.

 

ARJAV JAIN

ASSOCIATE

THE INDIAN LAWYER & ALLIED SERVICES

 

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