Arbitration, Invoked Without Authority, The Defect Can't Be Ratified With Fresh Board Resolution: Bombay High Court

The Bombay High Court has ruled that the issue whether the arbitration was invoked and the Statement of Claim was filed, by a person duly authorized by the claimant, goes to the root of the matter, with respect to which the arbitral tribunal may make a final arbitral award. Thus, the Court held that the order passed by the arbitral tribunal, granting a choice to the claimant to prove the board resolution passed by it, appointing its authorized representative, or to pass a fresh board resolution, is an interim award which is amenable to challenge under Section 34 of the Arbitration and Conciliation Act, 1996 (A&C Act). The Single Bench of Justice C.V. Bhadang held that once the arbitral tribunal had ruled that the specified person had no authority to invoke arbitration and depose on behalf of the claimant, in view of the fact that the alleged board resolution was not proved by it as valid, the tribunal could not have ruled that the said defect was rectifiable. The Court added that ratification can only be of an act which is otherwise valid. The petitioners- Ravi Arya and Ravi Arya Hindu Undivided Family (HUF), referred to as the RA Group, are Promoters/Directors of AISCO. The respondent- Palm View Investment Overseas Limited (PVIL), is a Company incorporated under the British Virgin Island Laws (BVI Laws). Under a Share Purchase and Share Subscription Agreement executed between the respondent and the petitioners, the respondent PVIL was inducted as a shareholder in AISCO. After certain disputes arose between the parties, a board resolution was allegedly passed by PVIL, authorizing a person to initiate arbitration proceedings and to depose before the Arbitral Tribunal on its behalf. The authorized person subsequently invoked the arbitration clause on behalf of PVIL. During the arbitral proceedings, the petitioners filed an application under Section 31 read with Section 32 of the A&C Act for dismissal of the respondent's claim, seeking a declaration that the statement of claim was presented on behalf of the respondent PVIL without any authority. The petitioner contended that the person allegedly authorized had no authority to invoke the arbitration clause. The Arbitral Tribunal passed an order, granting opportunity to the claimant/PVIL to either prove that the resolution passed by it, authorizing the specific person to initiate arbitration proceedings, was valid under the BVI Laws, or to file a fresh board resolution. The respondent PVIL communicated its decision of filing a fresh resolution, to the Tribunal. The petitioner filed a petition under Section 34 of the A&C Act before the Bombay High Court, challenging the order passed by the Tribunal. The petitioner Ravi Arya submitted before the Court that the person allegedly authorized to act on behalf of the respondent, was not an employee of the respondent nor did it have any concern with it. Further, the petitioner argued that the board resolution allegedly passed by PVIL, authorizing a person to initiate arbitration proceedings on its behalf, must be proved as a matter of fact by an expert witness in BVI Laws. It contended that PVIL had made no attempt to establish the legality of the board resolution, as required by Section 45 of the Indian Evidence Act, 1872. Thus, it argued that the board resolution was not proved to be valid as per the BVI laws or the Indian law. The petitioner averred that after an application under Section 31(6) read with Section 32 of the A&C Act, for dismissal of the respondent's claim was filed by it, the Tribunal had ruled that the alleged board resolution was invalid as it was yet to be proved by the respondent as valid under the BVI laws or the Indian law. The petitioner added that the Tribunal, after coming to such a conclusion, could not have held that the illegality was curable and rectifiable. Thus, the petitioner argued that the Tribunal, by granting the respondent an opportunity to pass a fresh resolution, had acted in equity which is in contravention of Section 28(2) of the A&C Act. It submitted that the Share Purchase and Share Subscription Agreement did not contemplate the Tribunal deciding ex aequo et bono or as an amiable compositeur. The petitioner contended that since the very initiation of claim was without any authority, the Arbitral Tribunal was rendered funtus officio. The petitioner submitted that the resolution did not comply with the provisions of Section 45 of the Indian Evidence Act and that it was in breach of Section 149 of the Companies Act, 2013. Thus, it argued that since the resolution allegedly passed by the respondent inherently lacked authority, it could not be permitted to be proved/ratified. The respondent- Palm View Investment Overseas Limited (PVIL), averred that the order passed by the Arbitral Tribunal did not finally decide any legal rights of the parties under the Share Purchase and Share ...

Arbitration, Invoked Without Authority, The Defect Can't Be Ratified With Fresh Board Resolution: Bombay High Court

Parina Katyal

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Arbitration, Invoked Without Authority, The Defect Can't Be Ratified With Fresh Board Resolution: Bombay High Court

Parina Katyal

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