Appointment Of Arbitration Committee Not Ex Facie Valid When Committee Is Constituted By One Of The Contesting Parties To Dispute: Rajasthan HC

The Arbitration Application, before the Jaipur Bench of the High Court, had been filed under Section 11(5) and (6) of the Arbitration and Conciliation Act, 1996 by the applicant for constitution of an Arbitral Tribunal to adjudicate/ resolve the dispute in respect of amendment made in the Constitution of 'Shri Maheshwari Samaj' in view of Clause 39 of the original constitution (Clause 50 of amended constitution) to settle such dispute through arbitration.

The Single-Judge Bench of Justice Sudesh Bansal said, “Shri Maheshwari Samaj, Jaipur is obviously an interested party to the dispute and is also one of the contesting party to the dispute.”

Advocate Pratyush Sharma represented the Petitioner while Advocate Prakul Khurana represented the Respondent.

The facts of the case suggested that 'Shri Mahehswari Samaj, Jaipur' is a registered body as society under the provisions of the Rajasthan Societies Act, 1958 and a written constitution is available to govern the activities and functionaries of 'Shri Mahehswari Samaj'. Applicant is one of the members of 'Shri Mahehswari Samaj'.

It was the case of the applicant that after the General Election of 'Shri Mahehswari Samaj', held in the year 2019, Members of Executive Committee were elected for a period of three years and the then Executive Committee carried out certain amendments in the existing and original constitution by calling an extraordinary General Body Meeting in the year 2020 but such amendments were made arbitrarily and as per whims of the Executive Committee, without obtaining occurrence of all the members.

For the applicant, Sharma pointed out that the appointment of a high-level Committee of five members to act as Dispute Resolution Committee in the present matter to settle the dispute in question, is against the spirit of the A&C Act, since such Committee has been appointed unilaterally by the non-applicant, who itself is one of the interested parties in the dispute and there is no involvement of applicant in appointment of Arbitrators. Thus, it was prayed that in the situation, an independent, impartial and neutral Arbitration Tribunal is required to be constituted by the Court to adjudicate/ resolve the dispute related to the constitution of 'Shri Mahehswari Samaj'.

The non-applicant-Shri Maheshwari Samaj, on the other hand, submitted that the application has already been submitted to the jurisdiction of such Arbitration Committee where the dispute is pending under consideration. Therefore, the present application for appointment of a new Arbitration Tribunal is misconceived and liable to be dismissed at threshold.

Referring to the judgment of the Apex Court in Perkins Eastman Architects DPC Vs. HSCC (India) Limited [(2020) 20 SCC 760], the Bench said, “The legal proposition is no more res integra that a party or an official or an authority having interest in the dispute would be dis-entitled to make appointment of an Arbitrator. The rationale underlying to such proposition of law is well recognized that the person, who has interest in the outcome of decision of the dispute, must not have powers to appoint the Arbitrator.”

Coming to the facts of the case the Bench made it clear that although, a new Executive Committee had come in existence after the elections held in the year 2022, yet the Officiating Members including the present General Secretary of Shri Maheshwari Samaj, Jaipur, who is authorized by the Executive Committee, too had an adversarial interest in the present dispute against the applicant and other similarly situated members.“This Court is not recording any opinion about the competence and standing of the members of the Resolution Committee, constituted by the non-applicant but as far as adjudication/ resolution of the present dispute by such Committee, which has been constituted by the non-applicant, who itself is one of the contesting and interesting party to the dispute, it is difficult to hold that such an appointment of the Arbitration Committee at least to resolve the present dispute is ex facie valid.”, it added.

The Bench reiterated that arbitration proceeding is an alternative resolution mechanism and held, "Keeping such aim and object and scheme of the Arbitration and Conciliation Act, this Court finds that there is no embargo for consideration of an arbitration Tribunal of sole arbitrator, de hors to the procedure agreed upon by the parties to appoint a panel of five arbitrators here by virtue of Section 10(2) of the A&C Act, this Court may deviate from the appointment of number of Arbitrators, unilaterally decided by the non-applicants and in the opinion of this Court, looking to the nature of subject matter of dispute, the constitution of Arbitration Tribunal of sole Arbitrator would be suffice."

Thus, allowing the arbitration application, the High Court appointed Justice Mahesh Bhagwati (Former Judge of High Court) as a sole Arbitrator to adjudicate the dispute between parties in accordance with provisions of the Arbitration and Conciliation Act, 1996.

Cause Title: Surendra Sarda v. Shri Maheshwari Samaj, Jaipur [Neutral Citation- 2024:RJ-JP:46465]

Appearance:

Petitioner: Advocate Pratyush Sharma

Respondent: Advocate Prakul Khurana

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