The Delhi High Court set aside an arbitration award due to the arbitrator’s failure to disclose conflicts of interest, as required under Section 12 of the Arbitration and Conciliation Act, 1996, and a breach of the principles of natural justice under Section 18 of the Act.

The Bench of Justice Prateek Jalan held that any disclosure required under Section 12(1) and Section 12(2) of the Arbitration and Conciliation Act, 1996 must be made in writing, and a verbal or telephonic disclosure would not suffice.

The Court emphasized that both provisions mandate written disclosure, and the case presented, which involved a telephonic disclosure, was deemed irrelevant for failing to meet the statutory requirement. "The question is, in any event, irrelevant as Section 12(1) and Section 12(2) both require the disclose to be made “in writing”. A telephonic disclosure, which is the only case pleaded, thus, would not suffice," the Bench held.

The Court also said, "A violation of Section 18 of the Act, which requires parties to be given a full opportunity to present their case. The award is, therefore, vitiated on this ground also."

"I am inclined to agree with the petitioner’s submission on this ground also. Section 24(3) of the Act reflects a facet of natural justice, that a party must be given the materials supplied by the other party to the arbitral tribunal, and have an opportunity to respond. Respondent No. 1 failed to adhere to this principle when it did not mark the e-mail in question to the petitioner. The learned arbitrator forwarded the documents to the petitioner almost three weeks after he received them, but did not consider it necessary to grant the petitioner more than one working day to consider the documents and respond. Such a procedure is unjustifiable, particularly when the documents in question were of over 30 pages, and encompassed several circulars," the Bench noted.

The case arose from a dispute related to a Concession Agreement between the petitioner and respondent regarding the development and management of retail outlets at airports, including the Chaudhary Charan Singh Airport in Lucknow. The petitioner, dissatisfied with the arbitral award granting Rs. 20 lakhs out of claims totaling Rs. 2.32 crores, challenged the award under Section 34 of the Arbitration Act.

The petitioner argued that the arbitrator failed to disclose his appointment by the respondent in another arbitration during the ongoing proceedings, violating Section 12(2) of the Act. The petitioner also claimed that the arbitrator received documents and clarifications from the respondent without allowing the petitioner an opportunity to respond, violating Section 18 of the Act.

The SIngle-Judge referred to the Supreme Court’s judgment in Voestalpine Schienen GmbH v. Delhi Metro Rail Corpn. Ltd., which emphasized the mandatory nature of disclosures by arbitrators regarding any potential conflicts of interest. The court held that under Section 12(2), the duty of disclosure is continuous and must be made in writing throughout the arbitral proceedings. A verbal disclosure does not suffice.

The Court noted that the arbitrator failed to disclose his subsequent appointment by the respondent, which was critical information that could raise doubts about his impartiality. Citing the Supreme Court’s decision in Union of India v. Sanjay Jethi, the court stressed that when bias is established, the arbitral proceedings are rendered a nullity.

In addition to the disclosure issue, the court found that the petitioner was not given adequate opportunity to respond to documents submitted by the respondent after the proceedings had been reserved. The Court also referred to Ssangyong Engg. & Construction Co. Ltd. v. NHAI, which held that failing to provide a party the chance to comment on evidence furnished by the opposing party violates Section 18, thereby making a case for setting aside the award.

The Court observed that the petitioner was given just one working day to respond to the new documents, which did not constitute a fair opportunity to present their case. The Court also highlighted that the respondent failed to mark the email containing the documents to the petitioner, further breaching Section 24(3) of the Act, which mandates that all parties receive materials submitted to the arbitral tribunal.

Conclusively, the Court ordered, "For the reasons stated, the petition is allowed, and the impugned award dated 11.08.2022 is set aside. The parties are at liberty to take such remedies as available to them under law. There will, however, be no order as to costs. The pending application also stands disposed of."

Cause Title: FLFL Travel Retail Lucknow Private Limited v. Airport Authority of India & Ors. [Neutral Citation No. 2024: DHC: 7800]

Appearance:-

Petitioner: Senior Advocate Rajshekhar Rao, Advocates D. Verma, Neha Sharma, Harshad Gada, Darpan Mehta

Respondent: Advocates Arun Sanwal, Akshit Gupta

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Justice Prateek JalanDelhi High Court

Sukriti Mishra