Restoring balance: Both judgments highlight the essential principles of procedural fairness and the consideration of evidence in arbitration

Two significant judgments by the Madras High Court and the Bombay High Court underscore the role of judiciary in ensuring fairness and consideration of evidence in arbitration for natural justice. They highlight the importance of transparency, equal opportunity and proper consideration of evidence in maintaining the integrity of arbitration proceedings.

Case 1

The first case is Geojit Financial Services vs Nalani Rajkumar & ors. It relates to a dispute between a stockbroker (Geojit Financial Services Ltd) and its client (Nalani Rajkumar) over unauthorised share transactions. Nalani Rajkumar claimed to hold 5,05,000 shares in M/s Electro Steel Castings Ltd, which the Geojit allegedly failed to sell as instructed. This led Nalani to seek compensation and invoke arbitration per National Stock Exchange (NSE) by-laws. After the conclusion of hearings, the Arbitral Tribunal sought additional statements from the NSE and, relying on these, rejected the Nalani’s claim, concluding she did not hold the shares in question.

Nalani challenged this award before the Appellate Tribunal, which upheld the initial award. Subsequently, she appealed under Section 34 of the Arbitration & Conciliation Act, 1996, before the Madras High Court, where the Single Judge set aside the award. On appeal, the Division Bench upheld this decision, noting several key points — (a) The Arbitral Tribunal’s action in obtaining NSE details post-hearing prejudiced the Respondent, as she couldn’t contest or explain these details; (b) Vital documents supporting the Respondent’s claim were ignored by the Tribunal, which relied solely on NSE statements obtained behind her back; (c) Disputed documents referred to a handwriting expert lacked findings, leading to procedural unfairness; and (d) The Tribunal’s actions compromised the fairness of the proceedings, justifying the award’s annulment under Section 34.

Case 2

The second case is Government of India vs Additional Commissioner, Nagpur, which related to land acquisition for the National Highway (NH-7) project. The landowner disputed the compensation awarded and sought arbitration. The arbitrator, after concluding the hearings, enhanced the compensation based on photocopies of two sale deeds submitted post-hearing, which NHAI could not contest.

GOI and NHAI challenged this award under Section 34, which was rejected by the District Judge. However, on appeal, the Bombay High Court (Nagpur Bench) identified significant issues. (a) The award was based on documents introduced without NHAI’s knowledge, violating Section 24 (mandating communication of all information) and Section 28 (requiring adherence to Indian substantive law); and (b) The award was deemed contrary to fundamental legal principles, necessitating its setting aside.

On the landowner’s contention for remanding the case under Section 34(4), the Court highlighted that this discretionary power is not automatic. Importantly, it noted that the section is used to correct inadequate reasoning, not procedural lapses. The court referred to the decision of the Supreme Court of India in “I-Pay Clearing Services Pvt Ltd vs ICICI Bank Ltd,” decided against remanding the case.

Both judgments highlight the essential principles of procedural fairness and the consideration of evidence in arbitration, emphasising natural justice and due process. “The judgments highlight the importance of transparency, equal opportunity and proper consideration of evidence in maintaining the integrity of arbitration proceedings,” notes Abhishek Kumar, lawyer with Singhania & Partners, a law firm. “The rejection of evidence taken without the other party’s knowledge reinforces the necessity for transparency and equal procedural rights, bolstering the credibility of the arbitration process,” observes Kumar.

Published on June 2, 2024