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Parties should adhere to clauses in the arbitration agreement

In MOTHER BOON FOODS PVT LTD vs MINDSCAPE ONE MARKETING PVT LTD, when the dispute between the parties could not be resolved, the matter was taken to arbitration. The Respondent constituted a three member tribunal, which issued notices to the parties. The Petitioner had at the earliest instant the sent a letter challenging the constitution of tribunal and the Petitioner did not participate in the arbitration proceedings. The tribunal adjourned the matter and issued notices to the Petitioner. Despite the same, the Petitioner did not appear. Arbitration proceedings were, accordingly, closed and the impugned award was passed.

The Submission of the Petitioner before the Delhi High Court was that as per the clause in the agreement, the Respondent was to appoint a Sole Arbitrator. A three member tribunal, fully chosen by the Respondent is, therefore, contrary to the agreement between the parties and the provisions of the Act. Hence the tribunal’s constitution being contrary to the agreement, the award passed is not sustainable.

The Delhi High Court decided that the arbitration clause reveals that the same contemplated the appointment, only of a Sole Arbitrator, by the Respondent. It is indeed strange as to how a three member tribunal came to be constituted by the Respondent. The Respondent appears to have “played safe” in the words of the learned counsel for the Respondent. There is, however, nothing on record to show that the Petitioner indeed demanded for constitution of a three member tribunal. It is nigh possible that the Respondent decided to adopt a fair attitude by appointing a three member tribunal, however, if a three member tribunal had to be appointed, then the same ought to have been done with the consent of the Petitioner and in accordance with the provisions of the Act. The arbitration agreement, as per the 1996 Act, has to be in writing and since the arbitration clause, which is a part of the contract, was in writing, the same could not have been superseded by any oral demand or agreement. The Petitioner may have been clever in orally demanding a three member tribunal but it is clear that the procedure adopted by the Respondent is impermissible.

The proverb, “better safe than sorry”, cannot be of universal application as the facts in the present case would show. The safe procedure for parties to an arbitration agreement is to actually adhere to the stipulation in the arbitration clause and not attempt anything which the parties may perceive to be safer.

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