LI Network
Published on: October 21, 2023 at 09:31 IST
The Supreme Court has issued a significant ruling stating that the principle of ex proprio vigore is applicable to arbitrators and multi-member arbitral tribunals, particularly when confronted with a judicial decision under Section 34 or Section 37 of the Arbitration and Conciliation Act, 1996.
Ex Proprio Vigore Principle emphasizes the need for arbitrators to respect and abide by binding judicial decisions.
The Court dismissed an appeal challenging the judgment and order of the Division Bench of the High Court, which had rejected the Appellant’s appeal under Section 37 of the Arbitration and Conciliation Act, 1996. The Appellant sought the reinstatement of an arbitral award.
The Bench, consisting of Justice S. Ravindra Bhat and Justice Dipankar Datta, emphasized that the principle of ex proprio vigore applies to both arbitrators and multi-member arbitral tribunals.
This principle becomes especially relevant when there is a judicial decision ordering a limited remand under Section 34 or Section 37 of the Act. Any arbitral award that attempts to disregard a binding judicial decision conflicts with the fundamental public policy and cannot be sustained, according to the Court.
In this case, the Appellant had been awarded a work contract to construct a Bhawan, but a delay of approximately 42 months occurred due to disputes between the parties. The matter was referred to an arbitrator, who issued an award in favor of the Appellant.
However, the Respondent filed an objection, and the award was set aside. The arbitrator subsequently issued a second award in favor of the Appellant, leading to the Respondent filing a petition under Section 34 of the Act.
The Appellant challenged the judgment of the Division Bench of the High Court, which upheld the order of the Single Judge setting aside the arbitral award after accepting the Respondent’s objection.
The Court examined whether a claim for loss of profit was valid merely because of a delay in the construction project attributable to the employer.
The Court noted that the First and Second Awards conflicted with the public policy of India, which encompasses adherence to the fundamental policy of law, statutes, judicial precedents, the need for a judicial approach, compliance with natural justice, Wednesbury unreasonableness, and patent illegality.
The Court pointed out that the arbitrator failed to consider the judicial decisions of the High Court and focused solely on the delay resulting from the incomplete provision of site and drawings within the stipulated period. The Court highlighted that certain formulae, while helpful, cannot independently prove a contractor’s loss of profit and need to be supported by credible evidence.
Furthermore, the Court reiterated the application of the ex proprio vigore principle to arbitrators and multi-member arbitral tribunals when dealing with judicial decisions under Sections 34 or 37 of the Act.
In conclusion, the Court ruled that the challenged award was patently illegal, perverse, and violated the public policy as defined in Section 34(2)(b) of the Act, leading to the dismissal of the appeal.
Case Title: Unibros v All India Radio