The Bombay High Court has ruled that an award debtor cannot seek to set aside the award because the expert, whose report was relied upon by the arbitrator, was not questioned by the opposing party if they have not utilized the provisions of Section 26 of the Arbitration and Conciliation Act, 1996 (A&C Act).
The bench of Justice Manish Pitale was handling a petition challenging an arbitral decision in a partnership dispute where the award debtor contended that the partnership firm's dissolution notice was invalid because one of the partners was allegedly mentally incompetent at the time of notice's issuance.
The Court found that the arbitrator had the power to reject the aforementioned issue even though it cannot ever be resolved in an arbitration hearing and must instead be considered by a special tribunal established by a special law.
Right to ask the expert to appear in an oral hearing
The A&C Act's Section 26 addresses the arbitral tribunal's nomination of an expert. According to Section 26(2), a party has the right to ask the expert to appear in an oral hearing so that the parties may ask him questions and call their expert witnesses to testify on the issues in dispute.
In two partnership firms, the petitioner Zenobia Poonawala and the respondents, who also include Rustom Ginwalla, are partners.
The petitioner reportedly transferred money from the partnership firm's account to her account without the other partners' knowledge or consent. As a result, the other partners gave notice of the firms' dissolution, and the parties' disagreement was then sent to arbitration.
The Arbitrator designated a Chartered Accountant as an auditor for the partnership firms' accounts after seeing that the accounts had to be resolved. In addition to the financial statements, the auditor also issued a report. The Arbitrator made a decision based on the aforementioned report that upheld the dissolution of the partnership firms and required the petitioner to pay the firm a specific sum of money.
Petitioner arguments
By submitting a petition to the Bombay High Court under Section 34 of the A&C Act, the petitioner, Zenobia Poonawala, contested the award. The petitioner argued that the Arbitrator could not have relied on the auditor's report because the author had not been questioned. She continued by saying that since the respondents decided to rely on the auditor's findings, it was their responsibility to demonstrate the same. The petitioner made other claims against the validity of the dissolution notification.
As a result, the petitioner claimed that the award had caused a miscarriage of justice by breaking fundamental principles of the law of evidence.
Respondent claims
According to the respondent, Rustom Ginwalla, the auditor was chosen with the parties' approval, and the petitioner should have used Section 26 of the A&C Act if she had any issues with the report.
The respondent claimed that the petitioner's argument that the dissolution notice was invalid was founded on the premise that one of the partners was purportedly not of sound mind at the time the dissolution notice was issued. The respondents argued that the aforementioned problem with purported insanity cannot be arbitrated.
Court observation
In Ssangyong Engineering & Construction Company Ltd. v. National Highway Authority of India (NHAI) (2019), the Apex Court emphasized that arbitral verdicts cannot be arbitrarily altered just because the Court determines that another viewpoint was plausible on the merits.
The High Court noted that the Supreme Court had decided in Ssangyong Engineering & Construction Company Ltd. (2019), citing Section 26 of the A&C Act, that if a party wants access to the expert's report in addition to the documents it has, that party must be given that access. A chance for the parties to interrogate the expert and submit their expert witnesses is also required, upon request, to settle the disputed issues.
"In the context of the current case, this Court thinks that the respondents are justified in relying upon the above-quoted provision, to oppose the contentions presented on behalf of the petitioner, as regards the report of the auditor," the High Court stated in its decision.
The bench stated, "..if the petitioner so desired, she could have requested the learned arbitrator to call the auditor to participate in the hearing, where the petitioner could have put questions to the auditor under sub-section (2) of Section 26 of the said Act." The bench held that the provisions of Section 26 of the A&C Act applied to the case. To testify on the relevant issues, the petitioner actually may have submitted expert witnesses.
According to the Court, the petitioner cannot assert that the respondents had to interview the auditor before the arbitrator could consider the auditor's report because they did not make use of Section 26's provisions.
The arbitrator is the master of the evidence, the bench said, and an award can only be overturned under Section 34 if there is no evidence.
Regarding the argument that the dissolution notice was invalid because one of the partners was allegedly not mentally competent, the court stated, "The ground regarding Farhad Ginwalla's insanity is unsustainable, for the reason that the issue of insanity could never have been resolved in the arbitral proceedings. Such a matter cannot be arbitrated and can only be resolved by the special tribunal established by the relevant special statute. It is acknowledged that the petitioner had filed such a case before the Bombay City Civil Court under the Mental Health Act against Farhad Ginwalla, but the proceedings were unsuccessful. Therefore, the learned arbitrator's decision to rule against the petitioner on the above-mentioned reason was not erroneous.
The Court dismissed the petition after determining that there was no justification for interfering with the arbitral verdict.
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