Arbitration Dispute: S.T. Madnani Advocate vs. Cold Storage Owner

In a significant legal battle, the Supreme Court of India delivered a crucial judgement on an arbitration dispute involving S.T. Madnani Advocate and the cold storage owner. The case highlighted concerns of potential bias and conflict of interest in arbitration proceedings. The Court’s ruling establishes guidelines for transparency and impartiality in such matters, impacting future arbitration cases. #SupremeCourt #LegalCase #Arbitration #ConflictOfInterest

Facts

• The appellant, sons of Sri Bhaiyalal Jain, engaged in business as commission agents for agricultural products, utilized cold storage services in 2004 for storage of 50 bags of ‘Shingada’.
• Appellants claimed improper storage caused damage, leading to a compensation demand through a notice dated 18.05.2006.
• Cold storage owner, respondent No. 1, denied the claim and made a counter claim, asserting the existence of an arbitration clause agreed upon by both parties.
• Appellants disputed the arbitration clause’s validity, especially the appointment of Sri S.T. Madnani, Advocate as an arbitrator, on the grounds of potential bias.
• Appellants raised objections to the conduct of the learned Arbitrator during the proceedings, leading to the filing of a petition under Sec. 34 of the Act, 1996.
• District Judge set aside the award on 06.11.2006 after finding the objections justified.
• Appellants appealed this decision to the High Court, leading to the current challenge of the High Court’s order dated August 30 and 31, 2007, in First Appeal No 187 of 2007.

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Arguments

• The appellants filed a Petition under Section 11 of the Act, 1996 seeking the appointment of an independent Arbitrator.
• It was argued by the appellants’ counsel that the Arbitrator had acted as a counsel for Sri Suresh, a partner of Original Name, without disclosure which violates Sec. 12 of the Act, 1996.
• The High Court Judge noted that the objection regarding the Arbitrator was raised by the father of the appellants and not by the appellants themselves, which led to the objection not being considered as a party objection under Sec. 13 of the Act.
• The High Court held that the Arbitrator appearing as a lawyer in one mesne profits case for Original Name would not automatically imply bias.
• The High Court ultimately set aside the order passed under Sec. 34 of the Act, 1996 and reinstated the award made by the Arbitrator.
• The contention is that there is no consensus ad idem between the parties regarding the reference of the dispute to the Arbitrator
• The term printed in the receipt cannot be relied upon for a meeting of minds
• Concerns raised about Sri S.T. Madnani, Advocate acting as the Arbitrator due to being counsel for the respondent in another case

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Analysis

• The appellants had raised objection to the arbitrator’s impartiality based on his dual role as arbitrator and counsel in another case.
• The arbitrator failed to recuse himself despite the conflict of interest being well-known to him at the time the claim was lodged.
• The obligation for disclosure under Section 12 of the Act, 1996 even prior to the amendment of 23.10.2015 was not fulfilled by the arbitrator.
• The arbitrator’s appearance as counsel for one of the parties in a related case raised doubts about his impartiality.
• The supporting affidavit filed by Sri Prakash, who was represented by the arbitrator in another case, in a related First Appeal confirms the connection between the arbitrator and one of the parties.
• The arbitrator’s conduct in acting as counsel for a party related to the arbitration matter indicates a conflict of interest and a lack of impartiality.
• Decision in the case of V.K. Dewan and Co. vs Delhi Jal Board and Ors. (2010) 15 SCC 717 was relied upon by the appellants.
• In the fairness of things, Sri S.T. Madnani should not have acted as an Arbitrator.
• Arbitrator’s award was not sustainable according to the view of the learned Judge
• The District Judge was justified in entertaining the petition to set aside the award under Section 34 of the Act, 1996
• The High Court Judge at Bombay was not justified in allowing the appeal under Section 37(1)(b) of the Act, 1996

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Decision

• The judgment dated 30 and 31 of August, 2007 passed by the High Court of Judicature at Bombay, Nagpur Bench in First Appeal No.187 of 2007 is set aside.
• The judgment dated 06.11.2006 passed by the Principal District Judge Nagpur in MCA No.538/2006 setting aside the award dated 08.08.2006 is restored.
• The parties are reserved the liberty of availing their remedy of arbitration in accordance with the law.
• All contentions on merits relating to the claim/counter claim are left open.
• The appeal is allowed with no order as to costs.

Case Title: VINOD BHAIYALAL JAIN Vs. WADHWANI PARMESHWARI COLD STORAGE PRIVATE LIMITED THROUGH ITS DIRECTOR

Case Number: C.A. No.-006960-006960 / 2011

Click here to read/download original judgement