The Delhi High Court sets aside an ex parte arbitral award holding that an arbitrator must serve sufficient notice before proceeding ex parte against a party.

The Delhi High Court has set aside an ex parte award passed by a sole arbitrator, appointed by GAIL Gas Ltd, the Respondent herein, holding that the Arbitrator did not make adequate efforts to be satisfied that sufficient cause was to be shown for non-appearance before proceeding ex-parte against the petitioner. Further, it was incumbent for the learned Arbitrator to furnish reasons for his findings in favour of the respondent.
 
The factual matrix leading to the proceedings before the Delhi High Court are that the petitioner is a Private Limited Company engaged in manufacturing of metals and chemicals and the respondent is a Central Public Sector Undertaking. The petitioner obtained supply of Natural Gas for its factory premises and accordingly, a Gas Sale Agreement was executed between the parties. As per the agreement between the parties Minimum Guaranteed Quantity of Gas had to be purchased every month equivalent to the quantity obtained by multiplying 90% of the daily Nominated Quantity. According to one side letter executed between the parties and certain clauses of the Agreement were amended/revised including the Arbitration Clause. The amended Arbitration clause provided for terms such as appointment of a sole arbitrator from amongst a panel of three arbitrators as suggested by the Respondent and on failure of the Petitioner to respond to the appointment of the Sole Arbitrator the Petitioner was to have the sole discretion on appointment of an Arbitrator.
 
During the course of the business between the parties, certain disputes arose amongst them, regarding which communications were also made. The issue initially arose regarding the delay in commencement date and thereafter, regarding the modification in the Daily Nominated Quantity, then regarding the invoices and ultimately regarding the payment and the default thereto. The respondent, vide its letter dated 7th August 2017, intimated the petitioner that its failure to clear outstanding dues of Rs. 1,29,73,780.01/- within the stipulated period entitled the respondent to terminate the Agreement, as per Clause 15.2 (vi) of the Agreement. Thereafter, the respondent also served a Legal Notice dated 27th March 2017 upon the petitioner invoking the Arbitration Clause of the Agreement and suggesting three names of potential Sole Arbitrators.
 
The petitioner did not to participate in the arbitration proceedings since the petitioner had already approached the District Court at Kota, Rajasthan against the respondent seeking injunction against the invocation of Letter of Credit. In the month of December 2018, the petitioner was furnished a letter from the Arbitrator informing the date and place of arbitration, where the petitioner did not partake. Meanwhile, the Arbitrator initiated, held and concluded the arbitration proceedings and made an ex-parte Award dated 21st October 2019. Aggrieved by the said ex-parte Award, the petitioner approached the Delhi High Court, seeking a challenge to the same.
 
The Court held thus:
 
A bare reading of the provision shows that an Arbitrator may continue the proceedings and make the arbitral award on the evidence before it where a party fails to appear at an oral hearing or to produce documentary evidence without showing sufficient cause, unless otherwise is decided amongst the parties. It is clear, that before taking an action in accordance with Section 25(c) of the Arbitration Act, the Arbitrator is to examine whether the absence of the parties is with or without showing sufficient cause. Therefore, it is evident that an opportunity is to be given to a party to the dispute before the Arbitrator decides to proceed on the basis of the evidence before it.
 
Another aspect to be seen it that as per the reply dated 4th May 2018, the respondent also had the knowledge of pending proceedings before the Civil Court at Kota, Rajasthan, yet after over six months, the arbitration proceedings were initiated, continued and concluded without the petitioner. Therefore, this Court finds that the Suit pertaining to the same issues between the parties being pending was in itself sufficient cause for learned Arbitrator not to proceed ex-parte against the petitioner after only one intimation and opportunity to appear for arbitration proceedings.
 
The learned Arbitrator need not have given elaborate, comprehensive or extensive Award but the mere recording of reasons for the findings made was an indispensable requirement to be met. Fulfilling the requirements under Section 31(3) of the Arbitration Act, is not a mere formality, but this provision makes way for a fair, reasonable and equitable opportunity to have the objective knowledge of the reasons why a claim is not decided in their favour. Accordingly, this Court finds that the principles laid down by the Hon’ble Supreme Court favour the case of the petitioner qua the requirement of passing a reasoned order being indispensable.

M/s Mittal Pigments Pvt Ltd vs M/s GAIL Gas Ltd