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Date : 27/07/2025

(2020) 01 DEL CK 0145

In the Delhi High Court
Case No : Original Miscellaneous Petition No. 1118 Of 2014

Sukhbir Singh APPELLANT

Vs
M/S Hindustan Petroleum Corporation Ltd RESPONDENT

Date of Decision : 16-01-2020

Acts Referred:
Arbitration and Conciliation Act, 1996 — Section 7, 18, 19, 19(2), 24, 24(1), 31A,
31A(3)(a), 31A(4)(e), 31A(4)(f), 31(8), 34, 34(2)(a)(iii)
Citation : (2020) 266 DLT 612
Hon'ble Judges : Prateek Jalan, J
Bench : Single Bench
Advocate : Sanat Kumar, Vinayak Batta, Anupam Srivastava, Divya Divya
Final Decision : Allowed

Judgement
Prateek Jalan, J
1. By the present petition under Section 34 of the Arbitration and Conciliation Act,
1996 [hereinafter referred to as “the Act”], the petitioner seeks setting aside of an
award dated 09.09.2014, rendered by a sole arbitrator [hereinafter referred to as
“the award”].
FACTS
2. The petitioner and the respondent were parties to a dealership agreement dated
27.06.1994 under which the petitioner was running a retail outlet for petrol, diesel,
motor oils, greases, and other such products. The term of the agreement was
fifteen years.
3. The controversy between the parties, which gave rise to arbitration proceedings,
concerns a sample of motor spirit [“MS”] taken from the petitioner”s retail outlet
on 22.01.2009. The inspection of MS at the retail outlet of the petitioner is stated to
have failed in the mobile lab test report, although the sample of High Speed Diesel
[“HSD”] was found to meet with specifications. Depot samples [“supply location
sample”], alongwith a Tank Truck Retention Sample [“TT Sample”] and Retail
Outlet Sample [“RO Sample”] were sent by the respondent to its laboratory, and
received on 24.01.2009. The laboratory report dated 25.02.2009, in respect of the
MS depot sample received, reveals that the samples taken from the supply location
and the tank truck were not tested, as they were reported to be “leaky”. However,
it was reported that the sample taken from the retail outlet failed to meet
specifications. The respondent thereafter appears to have submitted another depot
sample of MS to its laboratory on 30.01.2009. According to the petitioner, this was
done unilaterally by the respondent without any information or notice to the
petitioner. The report dated 28.04.2009, in respect of the MS sample received on
31.01.2009, found the sample to meet specifications.
4. The respondent issued a show cause notice dated 12.05.2009, calling upon the
petitioner to show cause as to why its dealership should not be terminated. The
petitioner claims that it is at this stage that the test reports came to its knowledge.
5. The petitioner replied to the show cause notice on 20.05.2009, raising various
disputes regarding the validity of the procedure adopted by the respondent, and
relying upon the provisions of the respondent”s Marketing Discipline Guidelines
(“MDG”) in this regard.
6. The petitioner challenged the show cause notice by way of a writ petition [WP(C)
13930/2009] before this Court. The writ petition was disposed of by an order dated
29.07.2010, permitting the petitioner to file a further reply to the show cause
notice, and directing the respondent to pass a reasoned order. Pursuant to the
liberty granted, the petitioner filed a detailed reply on 06.08.2010. By a reasoned
order dated 05.10.2010, the respondent found the petitioner”s reply unsatisfactory,
and decided to proceed further in the matter. The dealership was then terminated
on 22.12.2010. This was challenged in WP(C) 8175/2010, which was withdrawn on
23.08.2012 with liberty to pursue arbitration proceedings.
7. The petitioner invoked the arbitration clause contained in the dealership
agreement, and Mr. Arun Garg, an officer of the respondent, was appointed as the
sole arbitrator in accordance with the arbitration clause. Before the arbitrator, the
petitioner filed a statement of claim seeking restoration of the dealership
agreement and cancellation of the termination letter, as well as damages.
8. The respondent, in its reply to the petitioner”s statement of claim, relied inter
alia upon the laboratory test results mentioned above. The respondent contended
that the test results demonstrated adulteration and tampering with the quality of
the product by the petitioner. The petitioner filed an affidavit in evidence dated
09.09.2013, reiterating its contentions regarding non-compliance with provisions of
the MDG, and drawing out various discrepancies in the laboratory reports. On
behalf of the respondent, evidence was led by way of an affidavit of Mr. Raj Jindal,
Chief Regional Manager - Retail, HPCL, Meerut Retail Regional Office, dated
27.09.2013.
9. The petitioner thereafter filed an application dated 04.04.2014 before the
arbitrator contending inter alia that there was no occasion for the respondent to
have sent a second set of depot samples to the laboratory on 30.01.2009, even
prior to the report dated 25.02.2009, wherein the sample submitted on 24.01.2009
was reported to be “leaky”. The specific contention of the petitioner was that the
letter dated 30.01.2009 (by which the second depot sample is alleged to have been
submitted to the laboratory) and the report dated 28.04.2009, by which the second
depot sample was found to be within specifications, were fabricated documents.
The petitioner therefore sought permission to cross-examine the respondent”s
witness.
10. The arbitrator made his award on 09.09.2014. He declined the petitioner”s
request for an opportunity to cross-examine the witness. On a consideration of the
material before him, the arbitrator came to the conclusion that the respondent”s
termination of the dealership agreement was not illegal. Consequently, he declined
to award restoration of the dealership or damages in favour of the petitioner, but
awarded the value of stock lying at the outlet, and also gave the petitioner
permission to remove his goods and belongings from the site.
11. Being aggrieved by the said award, the petitioner has filed the present petition
under Section 34 of the Act.
SUBMISSIONS
12. The only ground of challenge argued by Mr. Sanat Kumar, learned Senior
Counsel for the petitioner, is that the arbitrator”s failure to permit cross-
examination of the respondent”s witness renders the impugned award liable to be
set aside for violation of the principles of natural justice.
13. Mr. Kumar drew my attention particularly to the first proviso to Section 24 of
the Act, to submit that in the absence of an agreement to the contrary, an oral
hearing for the presentation of evidence or for oral arguments is required to be
held at the request of either party. He emphasised that the petitioner was not
party to the documents in question, which were fundamental to the termination of
the petitioner”s dealership. In the context of the disputes raised, he submitted that
the petitioner”s request for cross-examination was not arbitrary or whimsical, and
ought to have been allowed. In support of his argument on the requirements of the
principles of natural justice, Mr.Kumar referred to the judgments of this Court in
Degremont Ltd. vs. Yamuna Gases & Chemicals Ltd. & Ors., (2012) 186 DLT 343,
and of the Bombay High Court in Pradyuman Kumar Sharma & Ors. vs. Jaysagar
M. Sancheti & Ors., 2013 SCC OnLine Bom 453, (2013) 5 Mah. L.J. 86, and Bi-
Water Penstocks Ltd. vs. Municipal Corporation of Greater Bombay & Anr., (2011)
3 Mah. L.J. 706.
14. Mr.Kumar cited the judgments of the Supreme Court in Harbanslal Sahnia &
Anr. vs. Indian Oil Corporation Ltd. & Ors., (2003) 2 SCC 107 (Paragraph 5),
Hindustan Petroleum Corporation Ltd. & Ors.vs. M/s Super Highway Services &
Anr., (2010) 3 SCC 321 (Paragraphs 31 & 33), and M/s Bharat Petroleum
Corporation Ltd. vs. Jagannath & Co. & Ors., (2013) 12 SCC 278(Paragraphs 14-
16), to support the petitioner”s case on merits regarding violation of the MDG
guidelines.
15. Mr. Anupam Srivastava, learned counsel for the respondent, on the other hand,
submitted that the challenge raised by the petitioner on these grounds does not fall
within the scope of Section 34 of the Act. He relied upon the Division Bench
decision of this Court in State Trading Corporation of India Ltd. vs. Toepfer
International Asia PTE Ltd.,(2014) 3 ArbLR 105 (Delhi), 2014 (144) DRJ 220in this
connection.
16. Mr.Srivastava further submitted that the proviso to Section 24(1) of the Act
ought not to be read so as to render the principal provision, granting discretion to
the arbitrator, redundant. It was his submission that the proviso to Section 24(1)
only permits a party to approach the arbitrator in the absence of any prior
determination as to the permissibility of oral hearings, but does not cast any
obligation upon the arbitrator to permit oral hearings. He referred to the judgment
of the Supreme Court in V. Tulasamma & Ors. vs. Sasha Reddy, (1977) 3 SCC 99
(paragraphs 4 and 40) with regard to the proper construction of a proviso to a
statutory provision. Mr.Srivastava commended the view taken by the Madras and
Bombay High Courts in Anand Viswanathan & Ors. vs. Kotak Mahindra Bank Ltd. &
Ors.[O.P. No. 726/2011, decided on 26.02.2019], and Vinay Bubna vs. Yogesh
Mehta & Ors.,1998 SCC OnLine Bom 399:1998 (100) 3 Bom.L.R. 739respectively.
He also cited the judgment of a Division Bench of the Bombay High Court in
Harinarayan Bajaj vs. Madhukar Sheth, 2015 (3) Arb.L.R. 234 (Bom) in this
connection.
17. Factually, Mr.Srivastava submitted that the petitioner”s application before the
arbitrator was made only on 04.04.2014 –more than six months after the affidavit
of evidence was filed by the respondent”s witness. He referred to the application to
submit that the grounds taken by the petitioner were untenable and baseless,
having regard to the fact that the samples received by the laboratory, as
evidenced by the letter dated 30.01.2009, were in fact tested, and the report dated
28.04.2009 was filed.
18. On the question of delay, Mr. Kumar pointed out in rejoinder that the affidavit
of evidence of the respondent”s witness was received by the petitioner only at the
hearing on 01.10.2013, following which, the next hearing was held only on
04.04.2014, when the petitioner”s application was made. He submitted (and it was
not disputed by Mr.Srivastava) that although several hearings were fixed in the
interregnum, they were adjourned in advance, and no proceedings were actually
held between 01.10.2013 and 04.04.2014.
ANALYSIS
I. Statutory provisions
19. The relevant provisions of the Act, required for adjudication of the questions
raised in this petition, are reproduced below:-
“18.Equal treatment of parties.—The parties shall be treated with equality and
each party shall be given a full opportunity to present his case.
19. Determination of rules of procedure.—(1) The arbitral tribunal shall not be
bound by the Code of Civil Procedure, 1908 (5 of 1908) or the Indian Evidence Act,
1872 (1 of 1872).
(2) Subject to this Part, the parties are free to agree on the procedure to be
followed by the arbitral tribunal in conducting its proceedings.
(3) Failing any agreement referred to in sub-section (2), the arbitral tribunal may,
subject to this Part, conduct the proceedings in the manner it considers
appropriate.
(4) The power of the arbitral tribunal under sub-section (3) includes the power to
determine the admissibility, relevance, materiality and weight of any evidence.
xxxx xxxx xxxx
24. Hearings and written proceedings.—(1) Unless otherwise agreed by the
parties, the arbitral tribunal shall decide whether to hold oral hearings for the
presentation of evidence or for oral argument, or whether the proceedings shall be
conducted on the basis of documents and other materials:
Provided that the arbitral tribunal shall hold oral hearings, at an appropriate stage
of the proceedings, on a request by a party, unless the parties have agreed that no
oral hearing shall be held:
1 [Provided further that the arbitral tribunal shall, as far as possible, hold oral
hearings for the presentation of evidence or for oral argument on day-to-day basis,
and not grant any adjournments unless sufficient cause is made out, and may
impose costs including exemplary costs on the party seeking adjournment without
any sufficient cause.]
(2) The parties shall be given sufficient advance notice of any hearing and of any
meeting of the arbitral tribunal for the purposes of inspection of documents, goods
or other property.
(3) All statements, documents or other information supplied to, or applications
made to, the arbitral tribunal by one party shall be communicated to the other
party, and any expert report or evidentiary document on which the arbitral tribunal
may rely in making its decision shall be communicated to the parties.”
20. Section 34 of the Act, to the extent relevant for the present purposes,
contemplates setting aside of an award on the following grounds:
“34. Application for setting aside arbitral award.—
xxxx xxxx xxxx
(2) An arbitral award may be set aside by the Court only if —
(a) the party making the application furnishes proof that—
(i) a party was under some incapacity, or
(ii) the arbitration agreement is not valid under the law to which the parties have
subjected it or, failing any indication thereon, under the law for the time being in
force; or
(iii) the party making the application was not given proper notice of the
appointment of an arbitrator or of the arbitral proceedings or was otherwise unable
to present his case; or
(iv) the arbitral award deals with a dispute not contemplated by or not falling
within the terms of the submission to arbitration, or it contains decisions on
matters beyond the scope of the submission to arbitration:
Provided that, if the decisions on matters submitted to arbitration can be separated
from those not so submitted, only that part of the arbitral award which contains
decisions on matters not submitted to arbitration may be set aside; or
(v) the composition of the arbitral tribunal or the arbitral procedure was not in
accordance with the agreement of the parties, unless such agreement was in
conflict with a provision of this Part from which the parties cannot derogate, or,
failing such agreement, was not in accordance with this Part; or
(b) the Court finds that—
(i) the subject-matter of the dispute is not capable of settlement by arbitration
under the law for the time being in force, or
(ii) the arbitral award is in conflict with the public policy of India.
1[Explanation 1.—For the avoidance of any doubt, it is clarified that an award is in
conflict with the public policy of India, only if,—
(i) the making of the award was induced or affected by fraud or corruption or was
in violation of section 75 or section 81; or
(ii) it is in contravention with the fundamental policy of Indian law; or (iii) it is in
conflict with the most basic notions of morality or justice.
Explanation 2.—For the avoidance of doubt, the test as to whether there is a
contravention with the fundamental policy of Indian law shall not entail a review on
the merits of the dispute.]
2[(2A) An arbitral award arising out of arbitrations other than international
commercial arbitrations, may also be set aside by the Court, if the Court finds that
the award is vitiated by patent illegality appearing on the face of the award:
Provided that an award shall not be set aside merely on the ground of an
erroneous application of the law or by reappreciation of evidence.]
xxxx xxxx xxxx”
II. Principles of Natural Justice
21. In considering the question raised in the context of a petition under Section 34
of the Act, it must be noted at the outset that the Supreme Court has, time and
again, emphasised adherence to the principles of natural justice as a part of the
fundamental policy of Indian law. In ONGC Ltd. vs. Western Geco International
Ltd., (2014) 9 SCC 263, the Court held inter alia as follows: -
“38. Equally important and indeed fundamental to the policy of Indian law is the
principle that a court and so also a quasi-judicial authority must, while determining
the rights and obligations of parties before it, do so in accordance with the
principles of natural justice. Besides the celebrated audi alteram partem rule one of
the facets of the principles of natural justice is that the court/authority deciding the
matter must apply its mind to the attendant facts and circumstances while taking a
view one way or the other. Non-application of mind is a defect that is fatal to any
adjudication. Application of mind is best demonstrated by disclosure of the mind
and disclosure of mind is best done by recording reasons in support of the decision
which the court or authority is taking. The requirement that an adjudicatory
authority must apply its mind is, in that view, so deeply embedded in our
jurisprudence that it can be described as a fundamental policy of Indian law.”
22. Referring to Western Geco (supra) and Associate Builders vs. Delhi
Development Authority (2015) 3 SCC 49, the Court reiterated these principles in
Ssangyong Engineering & Construction Co. Ltd. vs. National Highways Authority of
India, 2019 (3) ArbLR 152 (SC): 2019 SCCOnline SC 677.In paragraph 35 of
Ssangyong (supra), the analysis in Western Geco has been reaffirmed, at least to
the extent that it applies to arguments of natural justice: -
“…However, insofar as principles of natural justice are concerned, as contained in
Sections 18 and 34(2)(a)(iii) of the 1996 Act, these continue to be grounds of
challenge of an award, as is contained in paragraph 30 of Associate Builders
(supra).”
23. Mr.Srivastava referred to the decision in State Trading Corporation of India
(supra), to emphasise the limited scope of Section 34. However, even in that
decision, the Division Bench observed that the legitimacy of the process is well
within the scope of the Court's consideration. Reading this judgment in consonance
with the decisions of the Supreme Court, I am of the view that the present
challenge falls within these boundaries.
III. Delay
24. The next preliminary point which requires consideration is Mr.Srivastava's
argument that the petitioner requested cross-examination belatedly.
25. It is undisputed that an affidavit of evidence was filed on behalf of the
respondent on 01.10.2013 and the next hearing was only held on 04.04.2014,
when the request for cross-examination was made to the arbitrator. Although
some hearings had been scheduled in the interregnum, it is evident from the
material on record that no hearings were in fact held. Considering that all the dates
of hearing between 01.10.2013 and 04.04.2014 were cancelled in advance of
hearing, I find that the petitioner's request to the arbitrator was made at the
appropriate stage.
IV. Interpretation of Section 24(1) of the Act
(a) Background:
26. In interpreting the procedural provisions of the Act, and assessing the integrity
of the arbitral process in a given case, Section 18 provides the guiding principle.
Equal treatment of the parties and grant of full opportunity to present their cases is
central to the credibility of arbitration as a binding form of alternative dispute
resolution. The procedure determined by a tribunal under Section 19, and any
exercise of discretion in procedural matters, must fulfil these requirements. Section
24, which is based upon Article 24 of the UNCITRAL Model Law on Commercial
Arbitration, requires interpretation in this context.
27. Whether oral hearings are to be held – either for presentation of evidence or
for oral arguments – may be a matter upon which the parties have reached
agreement. If so, it is clear from the opening words of Section 24(1), and
consistent with the doctrine of party autonomy, that their agreement would
prevail.
28. Absent such agreement however, the Arbitral Tribunal is vested with discretion
to decide this question. It appears from the first proviso to Section 24(1) that the
discretion of the arbitrator in this regard is subject to one of the parties requesting
an oral hearing. The principle of the provision is that the requirement of due
process includes a right to oral hearing at the appropriate stage, if a party so
desires. The question to be decided is whether the proviso entitles a party to oral
hearing at its option, or leaves this matter to the discretion of the Arbitral Tribunal.
(b) Authorities cited:
29. In the judgment of this Court in Degremont (supra), relying upon Section 18 of
the Act, an arbitral award was set aside on the ground of „procedural infirmities”.
Mr.Sanat Kumar relied upon the following extracts of the said judgment:-
“30. The reply by Respondent No. 1 to the counter claims of the Petitioner was
over 300 pages. It was but necessary for the Tribunal to have permitted the
Petitioner to file a rejoinder to the said reply. Moreover, considering that a large
number of documents had been filed by both the parties and the claim was for a
sum of over Rs. 3.5 crores involving disputed questions of fact, it was necessary for
the Tribunal to have devised a procedure consistent with Section 18 of the Act to
ensure that full opportunity was given to both the parties to support their
respective claims and counter claims.It was also necessary, in the facts and
circumstances of the present case, to permit the parties to file affidavits
by way of examination in chief and also in a time-bound manner complete
the cross-examination of witnesses. On the other hand, the Tribunal appears
to have adopted summary procedure of going by the written submissions of both
the parties. While a Tribunal is not bound by the strict rules of evidence and the
rules of procedure that govern the proceedings before a civil court, it must
ensure that adequate opportunity is given to the parties before it to
present their respective cases and establish the veracity of the
documents relied upon by them. As far as the present case is concerned, it was
not correct for the Tribunal to have adopted a summary procedure of going only by
the written submissions of the parties. The Tribunal also does not appear to have
referred to the numerous documents filed by the parties in the impugned Award.
31. This Court holds that the procedure adopted by the Tribunal in the present case
was far from satisfactory and was not consistent with the requirement of Section
18 of the Act. This is another ground on which the impugned Award is unsustainable
in law and is hereby set aside.”
[Emphasis supplied]
30. Mr.Kumar also relied upon a judgment of the Bombay High Court in Pradyuman
Kumar Sharma (supra) (paragraph 33), wherein on an interpretation of Section 24
of the Act, it has been held that consideration of an unproven document by an
arbitrator would be in violation of the principles of natural justice. A Division Bench
of Bombay High Court in Bi-water Penstocks Ltd. (supra) also came to the same
conclusion that even though an arbitrator is not bound by technical rules of
procedure, the rules of natural justice must be observed, failing which the award
would be liable to be set aside.
31. Mr.Srivastava very fairly drew my attention to a decision of a Single Bench of
Madras High Court in ADV Consultant vs. Pioneer Equity Trade (India) Pvt. Ltd.,
2009 SCC OnLine Mad 1072, (2009) 8 Mad LJ 1578, in which Section 24 was
interpreted as follows:-
“2. The main ground on which the award is challenged by the petitioner who was
the respondent before the Arbitral Tribunal, apart from the grounds of bias and the
failure to give proper opportunity, is that the Arbitrator has not conducted the
proceedings as per section 19(2) read with section 24 of the Arbitration and
Conciliation Act, 1996. It is the case of the petitioner that the petitioner had
demanded to have oral hearing which was not allowed and no order was passed by
the Arbitratoron the request and there is no mention about it in the award.
xxxx xxxx xxxx
7. A combined reading of section 24(1) and section 19 of the said Act makes it clear
that on the factual situation of this case, the petitioner has requested for oral
hearing, which has been denied by the Arbitrator without assigning any reason. By
virtue of the proviso to section 24(1) of the Act, that is, when one of the
parties requests for oral hearing, it is the duty of the Arbitral Tribunal to
conduct the same unless consent of the parties have been formulated by
the Arbitral Tribunal agreeing not to have oral hearing. In the absence of
any reason adduced by the learned Arbitrator, it has necessarily to be construed
that the denial of oral hearing requested by the petitioner, by the Arbitrator is
against the provisions of the Act. In such circumstances, the contention of the
learned counsel for the petitioner in this regard has to be accepted.”
[Emphasis supplied]
32. The aforesaid judgments lend support to an interpretation of the first proviso to
Section 24(1) in mandatory terms. It may be derived therefrom that a party has a
right (at least, in the absence of a prior agreement to the contrary) to cross-
examine a witness produced by the other party. The importance of the right to
cross-examination has been emphasised in Mustill & Boyd, Commercial Arbitration,
Second edition, 1989, Chapter 22, Paragraph C5 (at pg 308):
“C5: Opportunity to controvert opponent”s case: Each party must have a
reasonable opportunity to challenge the case put forward by his opponent. The
parties must be able to find what case is to be met, and must be enabled to test
the opponent”s case by cross-examining the witness and leading evidence in
rebuttal, and to controvert his opponent”s arguments on facts or law by making
submissions in reply.”
33. Mr.Srivastava however relied upon a somewhat contrary interpretation of
Section 24 of the Act by the Madras High Court in Anand Vishvanathan(supra). The
learned Single Judge in that judgment held as follows: -
“26. A perusal of proviso to Section 24 A& C Act reveals that Arbitral Tribunal
should hold oral hearings at an appropriate stage of the proceedings, when a
request is made by a party. This is contained in the proviso to Section 24(1) of A &
C Act. To be noted, Section 24 as such gives elbowroom for the Arbitral
Tribunal to decide whether oral hearings has to be held at all, but that is
controlled by the proviso. Proviso has to be construed strictly.
27. Be that as it may, even with regard to proviso, it is clear that it is
imperative on the part of the Arbitral Tribunal to hold oral hearing, if a
request is made by a party and the only exception to this rigour is when
parties have agreed that no oral hearings shall be held….
xxxx xxxx xxxx
31. In the normal circumstances, it can be held that the matter rests here. The
reason is, oral hearings as envisaged under Section 24 of A& C Act is clearly for the
presentation of evidence or for oral argument. To be noted, the expression as
occurring in Section 24(1) of A & C Act is 'oral hearings for the presentation of
evidence or for oral argument'. This expression makes it clear that oral hearings if
any can be for two purposes. One is, for presentation of evidence and the other is,
for oral arguments. It can obviously be for both also in a given case. Therefore, the
expression 'oral hearings' occurring in the first proviso to section 24(1) of A & C Act
should necessarily be construed to mean oral hearings for the presentation of
evidence or for oral argument, i.e., two purposes set out herein. As the petitioners
in the instant case have clearly sought for permission to let in oral evidence,
particularly in paragraph 18 of the counter statement before Arbitral tribunal, it
follows as a sequitur that if the request had been acceded to, it would have
resulted in holding oral hearings. Be that as it may, proviso makes it mandatory
for Arbitral tribunal to hold oral hearings if a request in this regard is
made by a party and the only exception is when parties had agreed (in
the arbitration agreement) that no oral hearings shall be held. As already
alluded to supra, the parties in the instant case have not agreed that no oral
hearings shall be held, but what is of importance is arbitration clause is silent on
this aspect. When arbitration clause is silent on this aspect, I am of the considered
view that it should at best be left to the discretion of the Arbitral tribunal to decide
whether oral hearings are necessary.
32. This court reminds itself that Arbitral tribunal being a creature of contract (in
contradistinction to being creature of a Statute) is clearly a private tribunal which
can evolve its own procedure without being bound by 'The Code of Civil Procedure,
1908' ('CPC' for brevity) or for that matter 'The Indian Evidence Act, 1872'
('Evidence Act' for brevity). Under such circumstances, if an arbitration clause,
(i.e., arbitration agreement within the meaning of Section 7 of A & C Act) in which
it has not been explicitly articulated/covenanted that parties have agreed that no
oral hearings shall be held, is to be construed in such a manner that oral hearings
become mandatory the moment a party asks for oral evidence to be let in (as the
arbitration agreement is silent) that will dilute the complete discretion vested in
the Arbitral tribunal qua evolving its own procedure without being bound by CPC or
Evidence Act. Therefore, in my considered opinion, the expression 'unless the
parties have agreed that no oral hearing shall be held' occurring in the first proviso
to section 24(1) of A & C Act will mean cases where parties have explicitly
covenanted that they agree that no oral hearings shall be held and not to cases
where the arbitration agreement/clause is silent on this aspect of the matter.”
[Emphasis supplied]
34. Mr.Srivastava next relied upon the judgment in Vinay Bubna (supra),
particularly paragraph 59 thereof, which is set out below: -
“59. That takes us to the next challenge namely that the petitioners were denied
opportunity of leading evidence. The proviso to sub-section (1) of section 24 is
clear. If the parties before the arbitral tribunal seek to lead oral evidence
it must be granted as the expression is shall hold oral hearings at the
request of the parties. It may be that even in the expression ‘shall’ in a
limited number of cases wherein in fact no evidence is required to be led,
the tribunal can reject such an application. In the instant case, however the
petitioner had pointed out the need to examine the witnesses. The tribunal on the
express language of the proviso to section 24(1) could not have denied that
opportunity. On that count also the Award is liable to be set aside.”
[Emphasis supplied]
35. These two judgments do not, in my view, depart from the above interpretation
of Section 24 in general terms. However, to the extent that they appear to vest
some residuary discretion in the arbitrator, the request for oral hearings can only
be declined in exceptional circumstances and for reasons to be recorded. It is not
necessary to consider this issue further in the present case as, for the reasons
stated below, I find that the present case was not one which falls in that
exceptional category.
36. Similarly, the Division Bench judgment of Bombay High Court in Harinarayan
Bajaj (supra) is distinguishable. Although Section 24 is not discussed in the
judgment at all, the circumstances in which it was held that a refusal for permission
to cross-examine the respondent did not afford a ground for setting aside was that
the respondent had not been examined as a witness at all. The Division Bench
judgment is therefore authority for the proposition that a person who does not give
evidence cannot be compelled to offer himself for cross-examination. In the
present case, in contrast, evidence was led by the witness on behalf of the
respondent, who was sought to be cross-examined.
(c) Legislative History of the UNCITRAL Model Law:
37. Support for a reading of the proviso to Section 24(1) of the Act in mandatory
terms can also be derived from the legislative history of the corresponding
provision of the UNCITRAL Model Law.
38. Section 24(1) and its first proviso are based upon Article 24(1) of the Model
Law, reproduced below: -
“Article 24 - Hearings and Written Proceedings
1. Subject to any contrary agreement by the parties, the arbitral tribunal shall
decide whether to hold oral hearings for the presentation of evidence or for oral
argument, or whether the proceedings shall be conducted on the basis of
documents and other materials. However, unless the parties have agreed
that no hearings shall be held, the arbitral tribunal shall hold such
hearings at an appropriate stage of the proceedings, if so requested by a
party.
2. The parties shall be given sufficient advance notice of any hearing and of any
meeting of the arbitral tribunal for the purposes of inspection of goods, other
property or documents.
3. All statements, documents or other information supplied to the arbitral tribunal
by one party shall be communicated to the other party. Also any expert report or
evidentiary document on which the arbitral tribunal may rely in making its decision
shall be communicated to the parties.”
[Emphasis supplied]
39. The use of the word “shall” in the second part of Article 24(1) appears to be a
deliberate and considered attempt to incorporate a mandate to the Tribunal to
grant a request, if made by either party. This is evident from a perusal of Article 24
of the Draft Model Law considered by UNCITRAL. In the Draft Model Law, the
corresponding provision, set out below, used the directory “may”, rather than the
imperative “shall”:
“Article 24 - Hearings and Written Proceedings
(1) Subject to any contrary agreement by the parties, the arbitral tribunal shall
decide whether to hold oral hearings or whether the proceedings shall be
conducted on the basis of documents and other materials.
(2) Notwithstanding the provisions of paragraph (1) of this article, if a party so
requests, the arbitral tribunal may, at any appropriate stage of the
proceedings, hold hearings for the presentation of evidence or for oral
argument.
(3) The parties shall be given sufficient advance notice of any hearing and of any
meeting of the arbitral tribunal for inspection purposes.
(4) All statements, documents or other information supplied to the arbitral tribunal
by one party shall be communicated to the other party. Also any expert report or
other document, on which the arbitral tribunal may rely in making its decision,
shall be communicated to the parties.”
[Emphasis supplied]
40. In the Analytical Commentary on Draft Text of a Model Law on International
Commercial Arbitration: Report of the Secretary-General (A/CN.9/264) [as
published in the United Nations Commission on International Trade Law Yearbook,
1985 (Vol. XVI)], the following comments were offered with regard to Articles
19(3) and 24(1) and (2) of the Draft Model Law, which correspond to Sections 18
and 24(1) of the Act, respectively:
Regarding Article 19(3)
“Fundamental requirements of fairness, paragraph (3)
7. Paragraph (3) adopts basic notions of fairness in requiring that the parties be
treated with equality anti each party be given a full opportunity of presenting his
case. As expressed by the words "in either case", these fundamental requirements
shall be complied with not only by the arbitral tribunal when using its discretionary
powers under paragraph (2) but also by the parties when using their freedom
under paragraph (1) to lay down the rules of procedure. It is submitted that
these principles, in view of their fundamental nature, are to be followed
in all procedural contexts, including, for example, the procedures
referred to in articles 13 and 14.
8 . The principles, which paragraph (3) states in a general manner, are
implemented and put in more concrete form by provisions such as articles
24 (3), (4) and 26(2). Other provisions, such as articles 16(2), 23(2) and 25(c),
present certain refinements or restrictions in specific procedural contexts in order
to ensure efficient and expedient proceedings. These latter provisions, which like
all other provisions of the model law are in harmony with the principles laid down
in article 19(3), make it clear that "full opportunity of presenting one's case" does
not entitle a party to obstruct the proceedings by dilatory tactics and, for example,
present any objections, amendments, or evidence only on the eve of the award.
9. Of course, the arbitral tribunal must be guided, and indeed abide, by
this principle when determining the appropriate conduct of the
proceedings, for example, when fixing time-limits for submission of
statements or evidence or when establishing the modalities of hearings.
It must, for instance, not require more from a party than what may be reasonably
expected under the circumstances. With regard to the observation of the Working
Group noted in the commentary to article 12 (para. 5), it might be doubted
whether a party is given a full opportunity of presenting his case where, although
he is able to state in full his claim and the evidence supporting it, the conduct, of an
arbitrator reveals clearly lack of competence or of another qualification required of
him by agreement of the parties.”
[Emphasis supplied]
Regarding Article 24 (1) and (2)
“Proceedings with or without oral hearing, paragraphs (1) and (2)
1. Paragraphs (1) and (2) deal with the important procedural question whether
there will be any oral hearing or whether, as is less common, the arbitral
proceedings will be conducted exclusively on the basis of documents and other
materials (i.e. as "written proceedings"). Under paragraph (1), the arbitral tribunal
shall decide that question, subject to any contrary agreement by the parties and
subject to paragraph (2), which should, thus, be commented upon together with
paragraph (1). In order to facilitate understanding the interplay of these two
paragraphs, it seems advisable to distinguish three situations.
2. The first situation is that the parties have agreed that there shall be an
opportunity for oral argument or hearings for the presentation of evidence, either
upon request of a party or even without any such specific request. In such case,
which is probably not very common, the arbitral tribunal would have to comply
with that agreement, although a literal interpretation of the words
"notwithstanding the provisions of paragraph (1)" could lead to the conclusion that
even in such case the arbitral tribunal would have discretion as to whether to follow
any later request of a party.
3. The second situation is that the parties have agreed on written proceedings. In
such case, which is probably even less common than the first one, the arbitral
tribunal would have to comply with the wish of the parties (paragraph (1)).
However, if a party later requests a hearing, paragraph (2) empowers the arbitral
tribunal to disregard the original agreement of the parties and, in exercising its
discretion, to hold a hearing at an appropriate stage of the proceedings. The
underlying philosophy is that the right of a party to request a hearing is of such
importance, as emphasized by article 19(3), that the parties should not be allowed
to exclude it by agreement, while, on the other hand, it is desirable to envisage a
certain control by the arbitral tribunal in order to avoid its abuse for purposes of
delaying or obstructing the proceedings.
4. The third situation is that the parties have not made any stipulation on
the mode of the proceedings. In such case, which appears to be the most
common of all three situations, the arbitral tribunal would have discretion
under paragraph (1) to decide whether to hold an oral hearing. According
to paragraph (2), it would retain this discretion even if a party requests
an oral hearing. It is submitted that this latter rule, which appears to be
the result of a legislative oversight, should be reconsidered since it may
be regarded as not being consistent with article 19(3). Under the present
text, a party would have the fundamental right to present his views or evidence in
an oral hearing, unrestricted by any discretion of the arbitral tribunal, only if so
provided in the agreement of the parties, which, as mentioned above, is rarely the
case and should not be made a necessity by the model law.
5. As regards the particulars of paragraph (2), it may be noted that the wording
"hearings for the presentation of evidence or for oral argument" is intentionally
adopted in such general form. The formula "presentation of evidence" is intended
to cover all possible types of evidence recognized in various legal systems and
potentially admitted under article 19(1) or (2), e.g. evidence by witness, expert
witness, cross-examination of any such witness, testimony and cross-examination
of a party. The formula "oral argument" is intended to cover arguments not only on
the substance of the dispute but also on procedural issues.”
[Emphasis supplied]
41. The UNCITRAL Report on Adoption of the Model Law also underscored the
concern expressed in the Analytical Commentary. The relevant extracts of the
report, dealing with Article 24(1) and (2) of the Draft Model Law, are reproduced
below:
“203. The Commission noted that article 24 dealt with the issue of the mode of
arbitral proceedings as a matter of principle and did not deal with the procedural
aspects of deciding that issue. For example, the article did not deal with the
question of the point of time when the arbitral tribunal would have to decide on the
mode of the arbitral proceedings. That meant that the arbitral tribunal was free to
decide that question at the outset of the proceedings, or it could postpone the
determination of the mode of the proceedings and make such determinations in the
light of the development of the case. Before so deciding the arbitral tribunal would
normally request the parties to express their view or possible agreement on the
question. The article also did not deal with, and therefore did not limit, the
power of the arbitral tribunal to decide on the length of oral hearings, on
the stage at which oral hearings could be held, or on the question
whether the arbitral proceedings would be conducted partly on the basis
of oral hearings and partly on the basis of documents. It was noted that
such procedural decisions were governed by article 19, including its
paragraph (3).
204. The Commission was agreed that an agreement by the parties that oral
hearings were to be held was binding on the arbitral tribunal.
205. As to the question whether an agreement by the parties that there would be
no oral hearings was also binding, different views were expressed. Under one
view, the right to oral hearings was of such fundamental importance that the
parties were not bound by their agreement and a party could always request oral
hearings. Under another view, the agreement of the parties that no oral hearings
would be held was binding on the parties but not on the arbitral tribunal so that the
arbitral tribunal, if requested by a party, had the discretion to order oral hearings.
However, the prevailing view was that an agreed exclusion of oral hearings was
binding on the parties and the arbitral tribunal. Nevertheless, it was noted that
article 19 (3), requiring that each party should be given a full opportunity to
present his case, might in exceptional circumstances provide a compelling reason
for holding an oral hearing. It was understood that parties who had earlier agreed
that no hearings should be held were not precluded from later modifying their
agreement, and thus to allow a party to request oral hearings.
206. The Commission was agreed that where there was no agreement on
the mode of the proceedings a party had a right to oral hearings if he so
requested. In that connection it was noted that the French version of paragraph
(2) reflected that view while according to other versions of that paragraph the
arbitral tribunal retained the discretion whether to hold oral hearings even if
requested by a party.
207. The Commission was also agreed that where there was no
agreement on the mode of the proceedings, and no party had requested
an oral hearing, the arbitral tribunal was free to decide whether to hold
oral hearings or whether the proceedings would be conducted on the
basis of documents and other materials.
208. The Commission referred the implementation of its decisions to the Drafting
Group.
209. During consideration of the second sentence of article 24 (1), as presented by
the Drafting Group, which read as follows: "However, unless the parties have
agreed that no hearings shall be held, the arbitral tribunal shall, if so requested by
a party at an appropriate stage of the proceedings, hold such hearings", the
question was raised whether "at an appropriate stage" should refer to the request
or to the proceedings. After discussion the Commission decided to reword
the sentence as follows: "However, unless the parties have agreed that
no hearings shall be held, the arbitral tribunal shall hold such hearings at
an appropriate stage of the proceedings, if so requested by a party."”
[Emphasis supplied]
42. It appears that the Model Law was thereafter revised to reflect the above
comments. In the Explanatory Note by the UNCITRAL Secretariat on the 1985
Model Law on International Commercial Arbitration, Article 24 is characterised as
an illustration of the general principle of equality and full opportunity. Paragraph 32
of the Explanatory Note states as follows:-
“a. Fundamental procedural rights of a party
32. Article 18 embodies the principles that the parties shall be treated
with equality and given a full opportunity of presenting their case. A
number of provisions illustrate those principles. For example, article 24
(1) provides that, unless the parties have agreed that no oral hearings be
held for the presentation of evidence or for oral argument, the arbitral
tribunal shall hold such hearings at an appropriate stage of the
proceedings, if so requested by a party. It should be noted that article 24
(1) deals only with the general entitlement of a party to oral hearings (as
an alternative to proceedings conducted on the basis of documents and
other materials) and not with the procedural aspects, such as the length,
number or timing of hearings.”
[Emphasis supplied]
43. The aforesaid understanding of the Model Law thus supports the reading of the
first proviso to Section 24(1) of the Act as a “right” of a party, and therefore as a
mandate to the Tribunal.
(d) Conclusion:
44. From the aforesaid materials, and upon an interpretation of Section 24
consistent with the requirements of natural justice, I am of the view that the first
proviso to Section 24(1) requires a party”s request for oral hearings at the stage of
evidence or arguments to be granted. Unless the right to require oral evidence or
oral arguments has been waived by a prior agreement to the contrary between the
parties, the proviso to Section 24(1) expresses a legislative preference for the
grant of oral hearing at the request of either party. The judgment in V. Tulasamma
(supra), cited by Mr.Srivastava, holds that a proviso carves out an exception to the
main provision, but cannot destroy the effect of the main provision itself. In my
view, this interpretation of the proviso to Section 24 does not fall foul of this
principle – the proviso provides for an exception to the general provision, that the
arbitrator has discretion on the question of whether or not to permit oral hearings.
45. Some guidance in this regard can also be found in the recent judgment of the
Supreme Court in Jagjeet Singh Lyallpuri (Dead) Through Lrs. & Ors. vs. Unitop
Apartments & Builders Ltd., 2019 SCC OnLine SC 1541 [Civil Appeal No. 692/2016 ,
decided on 03.12.2019]. The High Court, in that case, had set aside an award on
the ground that parties were not given adequate opportunity to lead evidence and
cross-examine witnesses. The Supreme Court set aside that decision on the finding
that the parties had expressly agreed that cross-examination of witnesses was not
required. The challenge was therefore repelled (in paragraph 15 of the judgment)
on the grounds of estoppel, rather than on a finding that the party did not
otherwise have a right to lead evidence or cross-examine witnesses.
46. Having so held, a word of caution is necessary. The right granted in Section 24
does not require an Arbitral Tribunal to countenance unending cross-examination
or oral arguments. It is always open to the arbitrator to determine the length and
scope of oral hearings, which would necessarily depend upon the facts and
circumstances of each case. If a party seeks oral evidence, for example, the
Tribunal may be able, after hearing the parties, to determine the points on which
evidence is to be led. Similarly, arbitrators can set appropriate time limits for oral
arguments.
The arbitrators can require an application to be filed by the concerned party,
setting out the necessary material to enable the Tribunal to determine these
matters. Further, the second proviso to Section 24(1) expressly provides for
hearings on a day-to-day basis without unnecessary adjournments. The specific
insertion of the second proviso to Section 24(1) in our law, which goes beyond the
framework of the Model Law, indicates a legislative direction to litigants and
arbitrators in the interests of expeditious adjudication. Paragraph 8 of the
Analytical Commentary, paragraph 203 of the UNCITRAL Report on Adoption of the
Model Law, and paragraph 32 of the Explanatory Note to the Model Law make the
limits of Article 24 quite clear – a party”s rights do not extend to determining
procedural issues, such as the length or timing of oral hearings. These matters
remain squarely in the domain of the Arbitral Tribunal. In an appropriate case, a
request for oral hearing may be found to have been unreasonable or unnecessary,
and to have been made for collateral purposes, such as to delay the proceedings.
In such a case, Section 31(8) read with Section 31A of the Act empowers the
Arbitral Tribunal to make an order of costs in favour of the innocent party. Sections
31A(3)(a) and 31A(4)(e) and (f) in particular permit the Tribunal to make a specific
order of costs in relation to a particular stage of proceedings, having regard inter
alia to the conduct of the parties. Recourse to these safeguards will check strategic
requests for oral hearing, intended only to delay proceedings, without denying
parties the fundamental protections of natural justice.
V. Application to the facts of the present case
47. In the present case, I am of the view that the petitioner”s request for oral
evidence to be led on the veracity and contents of the letters dated 30.01.2009 and
28.04.2009 was reasonable, and could not have been rejected in the manner
reflected in the award. The said documents were fundamental to the case of the
respondent. The respondent”s contention, as recorded in the award, were based on
a comparison of the report dated 25.02.2009 (with regard to the depot samples
taken) and the report dated 28.04.2009 (with regard to the supply location
sample). The award records the respondent”s submission inter alia as follows:-
“…The defence of the respondent is summarised as under:
a) That at the time of inspection, clinical tests were carried out at the retail outlet
for both MS and HSD. The mobile lab report tor MS dated 22/01/2009 provided
that MS failed in parameter recovery at 100 degree Celsius as the observed
recovery of MS sample drawn from the outlet recorded 78, which is more than the
prescribed standard limit of 40-70. The mobile lab report for HSD dated
22/01/2009 provided that the HSD sample meets the specification. The said mobile
lab reports for MS and HSD were signed and acknowledged by Claimant.
b) That the Delhi Metro Lab report dated 25/02/2009 for MS provided that the
retail outlet nozzle sample failed at parameter recovery at 100 degree Celsius and
failed to meet specifications as per IS-2796:2008. The report further provided that
the TT samples were not tested by the lab as the same were found to be leaky and
the supply location sample was also not tested as the same was also returned as it
was leaky. Since the sample container is sealed and kept inside another wooden
sample box it is not possible to know the status of the sample (whether it is leaky
or not) at the time of its collection which is done on 'as is where is basis”.
c) That the depot maintains two identical sets of sample and since one set was
found to be leaky at the lab, therefore another set of same samples retained/kept
at the Supply location were sent to laboratory for testing and analysis. The Delhi
Metro lab, vide report dated 28/04/2009 provided that the depot sample met the
specification as per IS:2796:2008. And that both, letter dated 30.01.2009 and the
lab report dated 28.04.2009 are perfectly legal and valid documents. From the
above facts it is to be noted that since the depot sample was found to be meeting
the IS specifications, it is evident that the product supplied to the dealer was
proper and conforming to the required IS specification. Further the TT retention
sample could not be tested since the same was not properly maintained by the
dealer and was found to be leaky at the time of testing by lab. Since the retail
outlet nozzle sample failed to meetthe specifications it invariably indicates that
Claimant has indulged in tampering with the quality of the product supplied to the
claimant in other words indulged in adulteration of product. Considering that the
MS sample also failed during the clinical test by mobile lab inspection, and also in
the test conducted by Delhi Metro Lab, it is evident that the adulteration has taken
place at the Claimant/Dealer's end making him liable for the consequences thereof
as mentioned in the Dealership Agreement.”
48. The judgments cited by Mr.Sanat Kumar regarding the MDG, namely
Harbsanslal Sahnia (supra), Hindustan Petroleum Corporation Ltd. (supra), and
Bharat Petroleum Corporation Ltd. (supra), show that while undertaking the
process of testing, adherence to proper procedure as laid down in the
rules/guidelines framed for that purpose is basic to the process, and the arbitrator
ought to have been cognizant of the fact that the disputes raised by the petitioner,
with regard to the procedure adopted by the respondent, in fact go to the root of
the matter.
49. The only analysis in the impugned award with regard to the veracity of the
documents sought to be impeached by the petitioner is as follows:
“v. Regarding the dispute raised by the Claimant on the authenticity of the letter
dated 30.01.2009 and the Lab Report dated28.04.2009, I have to say that they are
official records duly signed by responsible Officers of the respondent corporation.
The claimant has not attributed any motive to the Officers concerned for indulging
in highly irregular practice of fabrication of the documents except for „to escape
embarrassment”. However, there was no case for the Lab Officers to feel
embarrassed for the lapses on part of the Depot, as alleged by the claimant.”
50. In my view, this reasoning is hardly satisfactory. Merely because a document is
signed by “responsible officers” to whom no motive is attributed, the request of the
petitioner could not have been denied. In fact, the aforesaid reasoning betrays the
arbitrator”s implicit faith in the officials of the respondent – of which he also
incidentally was one. While acting as an arbitrator, it is the duty of a person to
approach the dispute objectively and eschew preconceived notions about the
credibility, authenticity or genuineness of either party”s case. The impugned award
falls short of that minimum standard.
CONCLUSION
51. For the reasons aforesaid, I am of the view that even on the narrow grounds
permissible under Section 34 of the Act, the impugned award is unsustainable. The
petition is therefore allowed, and the impugned award dated 09.09.2014 is set
aside.