Writ Petition Against Arbitrator's Order Not Maintainable Unless Exceptional Circumstances Or Bad Faith Can Be Shown: M.P. High Court

Brief Facts:

M/s Master Point (“Petitioner”) and Smt. Sandhya Chouhan (“Respondent”) entered into a partnership for carrying out business. Pursuant to the agreement, they purchased an under-constructed shed in 2005 and the entire consideration for this shed was made by the Respondent, allegedly. A dispute arose between the parties when the Respondent was informed about the dissolution of the Petitioner firm. The Respondent alleged that her and her husband's signature was malafidely taken by informing her that it was for obtaining a credit facility. However, the actual purpose of the signature was to execute the deed of dissolution of the Petitioner firm. Feeling aggrieved, the Respondent filed a Section 11 petition under the Arbitration and Conciliation Act, 1996 (“the Act”), seeking the appointment of an Arbitrator. Her application was allowed and Justice I.S. Shrivastava (“Arbitrator”) was appointed as the arbitrator.

During the arbitration proceedings, the Petitioner filed an application under Section 16(3) read with Section 32 of the Act and contended that the matter pertained to allegations of fraud and forged dissolution deed. Therefore, it was non-arbitrable. In response, the Arbitrator observed that a mere allegation of fraud would not be sufficient to detract from the parties' obligation to refer their dispute to arbitration. Further, the Arbitrator held that the Petitioner had failed to raise the objection on the latest opportunity. Therefore, their right to raise the objection was barred under Section 4 of the Act. Feeling aggrieved, the Petitioner filed a writ petition in the Madhya Pradesh High Court (“High Court”) under Article 226 of the Indian Constitution.

The Respondent contended that the Act does not provide any remedy for the dismissal of an application made to the Arbitrator under Section 16(3). The Petitioner was not empowered to raise this issue before the passing of the final award. It could only be raised by way of an appeal under Section 34 of the Act after the final award is passed by the Arbitrator.

Observations by the High Court:

At the outset, the High Court referred to the case of Suncity Dhoot Colonizers Pvt. Ltd. vs Ram Chandra Patidar [W.P. No. 28151/2023], wherein it was held that a writ petition under Article 226 or 227 of the Indian Constitution is not maintainable against every order passed by arbitral tribunal unless exceptional circumstances or 'bad faith' on the opposite party's part has been shown in the petition. The High Court held that a writ petition for the dismissal of Section 16 application under the Act can only be entertained if there is a patent lack of inherent jurisdiction of the arbitral tribunal. In this case, there was nothing to suggest a patent lack of inherent jurisdiction.

Considering these observations, the High Court found no reason to interfere with the impugned order of the Arbitrator by exercising its writ-jurisdiction. The Petitioner was given the liberty to avail the remedy of an appeal under Section 34 of the Act after the pronouncement of the final award. The petition was dismissed.

Case Title: M/s Master Point and Anr. vs Smt. Sandhya Chouhan

Case No.: Writ Petition No. 15848 of 2023

Advocate for the Petitioner: Shri Abhinav Dhanodkar

Advocate for the Respondent: Shri Paresh Joshi

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