M/S Saudi-Bangladesh Service Co. Vs. Saudi Arabian Airlines, 2018(1) LNJ 329

Case No: Arbitration Case No. 02 of 2006

Judge: Zubayer Rahman Chowdhury, J.

Court: High Court Division,

Advocate: Mr. Rafique-ul Huq, Senior Advocate, Mr. A. J. Mohammad Ali, Senior Advocate,

Citation: 2018(1) LNJ 329

Case Year: 2009

Appellant: M/S. Saudi-Bangladesh Services Company Limited.

Respondent: Saudi Arabian Airlines Corporation, represented by its Country Manager, Dhaka.

Subject: Arbitration Act,

Delivery Date: 2018-06-05

HIGH COURT DIVISION

(ORIGINAL STATUTORY JURISDICTION)

Zubayer Rahman Chowdhury, J

 

Judgment on

05.01.2009

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M/S. Saudi-Bangladesh Services Company Limited.

. . .Petitioner

-Versus-

Saudi Arabian Airlines Corporation, represented by its Country Manager, Dhaka.

. . .Respondent

Arbitration Act (I of 2001)

Sections 23, 25, 36 (3)

Model Law on International Commercial Arbitration

Article 28(4) and 32(1)

Section 23 of the Act, which deals with the general responsibilities of the Tribunal, stipulates that the Tribunal shall deal with the dispute submitted to it “ fairly” and “ impartially”. Section 25 of the Act provides that subject to the Act, the Tribunal shall follow the procedure “to be agreed on” by the parties in “conducting its proceedings”. A similar provision appears in the “United Nations Commission on International Trade Law, Model Law on International Commercial Arbitration (hereinafter referred to as the Model Law). Article 28(4) of the Model Law stipulates that in all cases, the arbitral tribunal shall decide in accordance with the terms of the contract. Section 36(3) of the Act mandates that the Tribunal shall decide in accordance the terms of the contract. Upon a combined reading of the sections and articles referred to above, the conclusion that flows there from is that the Tribunal, meaning all the members and not just the majority, are not only required to act fairly, but are also required to follow the procedure that has been agreed by and between the parties “in conducting the proceedings”. The term “proceeding” has not been defined in the Act. However, Article 32(1) of the Model Law provides that the arbitral proceedings are terminated by the final award. In my view, the term, “proceedings include the final deliberations/ discussions that take place between the members of the Tribunal before an Award is made and signed. Therefore, the duty to act fairly, as envisaged by section 23 of the Act, is not merely confined to the arbitration proceeding itself, but extends to the deliberations that is required to take place between the members of the Tribunal before an Award is made.                        . . .(33 to 37)

Arbitration Act (I of 2001)

Sections 23 and 37

Model Law on international Commercial Arbitration

Article 29

Section 37 of the Act provides that the decision of the Tribunal shall be by a majority of its members. Article 29 of the Model Law contains a similar provision. An award by the majority connotes an Award where each and every member of the Tribunal actively participates not only in the arbitration proceeding, but also in the deliberation that takes place between the members of the Tribunal before the Award is made and signed. There may very well be an Award by the majority, but that should only be made after there has been a proper and complete deliberation between the members of the Tribunal covering all the issues in dispute between the parties. However, if an Award is made in violation of the aforesaid procedure, it would tantamount to a procedural impropriety and therefore, the resultant Award cannot be termed as an Award by the majority. In my view, this is certainly not the intendment of the parties. In any event, whether the Award of the Tribunal is “unanimous” or “by a majority”, it is imperative that there must be deliberation/discussion between the members of the Tribunal prior to making and signing the Award. This is not an idle formality, but a legal requirement, as reflected in section 23 of the Act, which enjoins a positive duty upon the Tribunal to act “fairly”. Furthermore, the Tribunal is not only expected to act fairly, but it must also act judicially in the discharge of its duty. If it does otherwise, that would be contrary to and violative of the principles of natural justice since judicial acts, by their very nature, are deemed to be amenable to the rules of natural justice. Although section 37(2) of the Act authorizes the chairman to decided “question of procedure”, if authorized by the parties or all the members of the Tribunal, it does not confer any authority on the Chairman to make the Award without undertaking a proper and detailed deliberation with the other members of the Tribunal. However, in the instant case the Tribunal or, in any event, the Chairman had acted in contravention of the terms of the agreement between the parties. Consequently, it cannot be said that the Tribunal had either acted fairly or in accordance with the terms of the agreement between the parties, as it was required to do under the Act. This Court is inclined to hold that the 3rd Arbitrator was neither consulted nor given any opportunity by the Chairman of the Tribunal to deliberate and express his views on the issues before making and signing the Award under challenge. Accordingly, the impugned award is set aside.

. . .(38 to 41, 49, 50, 59 and 60)

Sheikh Abdulla Vs. M.V.R.S Firm and Sons and another, 1924 Rangoon 153; Abu Hamid Zahira Ala Vs. Golam Sarwar, XXII CWN (1917 -18), 301; European Grain Vs. Johnston, Lloyd’s Law Reports (1982) Vol. 2, 551; Dewan Singh Vs. Champat Singh, AIR 1970 SC 967; S.L. Kapoor Vs. Jagmohan, AIR 1981 SC 136; Nand Ram Vs. Fakir Chand, ILR 7 (1885) All 523; Hindustan Petroleum Corporation Limited Vs. Environmental Engineers Ltd. and another, (2001) 2 Comp 79 (Bom); Murlidhar Agarwal and another Vs. State of Uttar Pradesh and others, AIR 1974 SC 1924 and Oil and Naural Gas Corporation Ltd Vs. SAW Pipes Ltd, AIR 2003 SC 2629 ref.

Mr. Rafique-ul Huq, Senior Advocate with

Mr. Ajmalul Hossain, Advocate

. . .For the Petitioner

Mr. A. J. Mohammad Ali, Senior Advocate with

Mr. Md. Ashanur Rahman and

Ms. Verbeena Huda, Advocates

. . . For the Respondent

JUDGMENT

Zubayer Rahman Chowdhury, J: This is an application under section 42 read with section 43 of the Arbitration Act, 2001 for setting aside the Award dated 08.04.2006 passed by the Arbitral Tribunal in an arbitration proceeding between Saudi Arabian Airlines Corporation (the claimant) and M/S. Saudi-Bangladesh Services Company Limited (the respondent).

2.          In the arbitration proceeding before the Arbitral Tribunal (hereinafter referred to as the Tribunal), the respondent, as claimant, made a claim of Tk. 32,27,50,566.51, while the present petitioner, as respondent, not only denied the claim, but made a counter claim for Tk. 161,15,29,583.00 along with interest @ 16% per annum on the awarded sum.

3.          The three member Tribunal comprising of Mr. Justice M. H. Rahman, a former Head of the Caretaker Government and former Chief Justice of Bangladesh, Mr. M. Amirul Islam, Senior Advocate, Supreme Court of Bangladesh and Dr. M. Zahir, Senior Advocate, Supreme Court of Bangladesh, upon hearing the parties, by a majority decision, made an Award of Tk. 31,27,50,566 in favour of the claimant (the respondent herein) and dismissed the counter claim of the respondent (the petitioner herein).

4.          The dissenting opinion was given by Mr. M. Amirul Islam, who allowed the claim of the claimant for the amount of Tk. 4,88,72,217.43 and also allowed the counter-claim of respondent no.1 for Tk. 57,26,92,897.67.

5.          Since the instant application was filed challenging the legality and propriety of the Award on the ground of non-compliance as well as violation of the provisions of the Arbitration Act, 2001 by the Tribunal, and that too, at the stage of making and signing the Award, this Court is not inclined to enter into a discourse regarding the claims and counter claims of the parties or, for that matter, the merit of the case.

6.          Mr. Ajmalul Hossain, the learned Advocate appearing for the petitioner submits at the outset that he will not press ground numbers I, II, III, IV and V which relate to jurisdiction of the Tribunal, but would rely on the other grounds, particularly ground numbers VI, VII and XI stated in his application.

7.          Giving a factual background of the entire arbitration proceeding, Mr. Hossain submits that in the instant case, the majority decision of the Trubunal is not legal and binding upon the parties in view of the fact that one of the Arbitrators, namely, Mr. M. Amirul Islam (hereinafter referred to as the 3rd Arbitrator) was completely left out of the process of consultation before finalizing and making the Award. Mr. Hossain submits that the spirit and intent of the Arbitration Act, 2001 (hereinafter referred to as the Act) is to ensure that the arbitration proceeding including the making and signing of the Award is conducted by effective participation of all the members of the Tribunal, but in the instant case, there was a clear deviation therefrom. Mr. Hossain accepts the position that there are may be an Award by the majority, but contends that such an Award has to be made after taking due consideration of the views and opinion of the dissenting Arbitrator.

8.          Referring to Annexures I and II, annexed with the dissenting opinion marked as Annexure F, Mr. Hossian submits that upon conclusion of the hearing on 05.04.2006, the 3rd Arbitrator had written to both the Chairman and the 2nd Arbitrator (Dr. M. Zahir) on the following day expressing his view that the Tribunal should meet and deliberate on the issues before making the Award.

9.          Referring to the respective endorsements made by the Chairman and the 2nd Arbitrator on the letter sent by the 3rd Arbitrator, Mr. Hossain submits that the 3rd Arbitrator was led to believe that the members of the Tribunal would meet at BILIA (the venue of the Arbitration proceeding) for holding deliberation before making the Award. However, when the 3rd Arbitrator went to BILIA at the appointed date and time, ie., on 08.04.2006 at 10:00 a.m., he was given a one hundred page typed Award, which had already been signed by both the Chairman and the 2nd Arbitrator. Upon receiving the same, the 3rd Arbitrator put the following endorsement on the Award :

“I just now saw the opinion this morning at 10.20 a.m. Since I differ with the opinion given herein I will submit my separate opinion.”

Sd/-(M. Amir-Ul-Islam)

Barrister-at-Law, Senior Advocate

10.      Mr. Hossain contends that without paying any heed to the aforesaid request and without even affording an opportunity to the 3rd Arbitrator to participate in the deliberation and express his views before the Award was made, the Chairman and the other member of the Tribunal finalized and signed the Award. Therefore, on this ground, the Award is liable to be set aside.

11.      Substantiating his argument, Mr. Hossain has referred to the opening paragraph of the dissenting opinion given by the 3rd Arbitrator, as evidenced by Annexure-F, which reads as under :  

“At the outset I express my discomfort with the statement in paragraph 45 of the award opinion of my fellow con-arbitrators, Mr. Justice M.H. Rahman, Chairman and Dr. M. Zahir that “Mr. M. Amir-Ul Islam, Barrister-at-Law, Senior Advocate, co-arbitrator, has been consulted ...”. On the contrary, I wrote letters to both of my co-arbitrators on April 06, 2006 stating that our very brief discussion on the date of the close of the hearing was not enough and we should discuss at length with regard to each of the issues before we make up our mind. In response to my letters both the learned co-arbitrators were pleased to fix a meeting on April 08, 2006 in the morning. But with utter surprise both my co-arbitrators without allowing time for the proposed discussion signed the award at 10.20 on the same date before I could even have a look at the award which was produced in a finished and conclusive form typed on a stamped paper, already signed by my two co-arbitrators.” 

12.      Mr. Hossain submits that it is evident from the aforesaid statement made by the 3rd Arbitrator that he was neither consulted nor was he given any opportunity, as was requested by him on the previous day, to discuss the issues before the Award was made.

13.      Referring to section 43(v) of the Act, Mr. Hossain contends that although the law requires the arbitration proceeding to be conducted in accordance with the agreement of the parties, there was a clear deviation from the agreement in as much as, the 3rd Arbitrator was totally excluded from the deliberation process before making and signing the Award. In doing so, according to Mr. Hossain, the Tribunal had not only acted in utter disregard to the requirement of section 23 of the Act, but had also acted contrary to the provisions of section 25 of the Act. Consequently, Mr. Hossain submits, the Award is liable to be set aside.

14.      Mr. A. J. Mohammad Ali, Senior Advocate appearing with Ms. Verbeena Huda, Advocate for the respondent (Saudi Arabia Airlines Corporation) submits that the Award under challenge was passed by the Tribunal upon holding a lengthy hearing in presence of both the parties, who were duly represented by their learned lawyers. Mr. Ali further submits that the arbitration proceeding lasted for about three years and, therefore, it cannot be said that the parities did not have adequate opportunity to place their respective case before the Tribunal. Mr. Ali further submits that the agreement between the parties provides for an Award by the majority and in the instant case, the Award having been so made, it does not call for any interference by this Court.

15.      Mr. Ali submits categorically that the entire proceedings took place before the Tribunal comprising of the Chairman and the two Arbitrators who had ample opportunity to discuss the issues amongst themselves when the hearing took place and, therefore, the allegation of excluding the 3rd Arbitrator from the deliberation process before making the Award is not tenable. Mr. Ali further submits that if any member of a Tribunal decides to give a dissenting opinion, he can very well do so. Mr. Ali lastly submits that if the instant application is allowed, it will open a floodgate and frustrate the purpose and spirit of the Act, which is primarily intended to settle disputes between the parties outside the Court.

16.      Undoubtedly, there is a great deal of force in the contention of Mr. Ali that the purpose of the Arbitration Act, 2001 is to minimize the duration of litigation between the parties by affording a forum for settling their dispute outside the Court.

17.      When an arbitration proceeding is conducted before an Arbitral Tribunal, there may very well be an Award by the majority. This is an undisputed position. At the same time, the arbitration proceeding must also conform to certain well established principles and norms of legal rules and conduct. Upon conclusion of hearing, the members of the Tribunal must hold proper deliberations amongst themselves covering all the issues of the proceeding before making and signing the Award. This is not an idle formality, but a judicial requirement designed to ensure that the matter is heard and deliberated by each and every member of the Tribunal before making and signing the Award.

18.      Although a good number of cases have been cited by Mr. Hossain, I shall only refer to those which are relevant for the purpose of disposal of the instant case. On the other hand, Mr. Mohammad Ali has lightened the burden of the Court by not referring to any decision.

19.      In Sheik Abdulla v. M.V.R.S. Firm and Sons and another, reported in 1924 Rangoon 153, both the parties nominated five Arbitrators and agreed that the Award of the majority of the Arbitrators would prevail. Nevertheless, the Court held :

“In this view of the reference each party was entitled to have the benefit of the opinion and decision of all the five arbitrators and not only some of them. From the fact that the three arbitrators who actually made the award happened to hold the same opinion it cannot be assumed that even if the other two had acted, the opinion of the former three would not have been affected. It is not impossible that a discussion among all the five might have produced a different award.”   

20.      In another case, reported in XXII CWN (1917-18), 301 (Abu Hamid Zahira Ala v. Golam Sarwar),  the Court held :

“……. It is essential that there should be a unanimous participation by the arbitrators in consulting and deliberating upon the award to be made ; the operation of this rule is in no way affected by the fact that authority is conferred upon the arbitrators to make a majority award ; even where less than the whole number of arbitrators may make a valid award, they cannot do so without consulting the other arbitrators.”

21.      Mr. Hossain refers to the widely followed work of “Rusesell on Arbitration”, 28th  Edition, where it has been stated :

“All the arbitrators must act together. As they must all act, so they must all act together. They must each be present at every meeting ; and the witnesses and the parties must be examined in the presence of them all.

All must make award together. Where there are two or more arbitrators, all should execute the award at the same time and place. If they do not, the award may be invalidated, but as the objection is one of a formal character, if no other objection is shown, the court may remit the award to the arbitrators for correction.”

22.      The aforesaid statement was cited with approval in the case of European Grain v. Johnston, reported in Lloyd’s Law Reports (1982) Vol. 2, 551, where the Court held :

“What I think the authorities show, as must be right, is that an arbitration conducted by a tribunal of several arbitrators necessarily requires a joint process of full and complete adjudication by all of them, so that the ultimate award represents the state of mind of all of them at the time when they sign it”.

(Per Lord Justice Kerr).

23.      It appears from Annexure I and Annexure II of Annexure F, that upon conclusion of the hearing on 05.04.2006, the 3rd Arbitrator sent a letter on the following day to the Chairman and the 2nd Arbitrator of the Tribunal requesting for a meeting to discuss and deliberate on the issues before making the Award. It is perhaps pertinent to quote the said letter in full, which reads as under :

“April 6, 2006

Dear Hon’ble Chairman

Mr. Justice Habibur Rahman and

Co Arbitrator Dr. M. Zahir

Ref: Saudia Arabian Airlines Corporation

-Versus-

Saudia Bangladesh Services Company Ltd.

I refer to our discussions yesterday after the close of the hearing. I thought this was not adequate to discuss the proposed award, not allowing any opportunity to discuss the issues and the underlying legal principles involved both on question of fact and law. While we accepted the obligation to hear and determine the dispute between the parties it will not be proper to rush for an award without discussing each of the issues. You proposed Saturday, 08.04.2006 I hope you will not close your mind and take a view before we have had opportunity to share our thoughts and reasoning. I invite you to arrange a mutually convenient time when we can discuss the issues between the parties and deliberate our reasoning for resolution of those issues. You suggested Saturday but before signing the award there has to be enough time, opportunity and willingness to share the reasoning before taking a view and finalizing the Award.

Since this matter is of the greatest importance to the parties, I feel that it is incumbent upon us to properly and judicially approach the issues with a view to resolving them and the material and legal principles have to be considered before the Award is finalized.

Kindly inform me of a convenient date and time for proper deliberations with adequate opportunity to deal with each of the issues before the award is made. If there is such an opportunity prior to finalizing the Award, then, I shall certainly make myself available to deliberate upon these issues and consider the proper Award to be made in this case.

Yours sincerely,

M. Amir-Ul Islam

Co Arbitrator”

24.      Upon receiving the aforesaid letter, the Chairman of the Tribunal made the following endorsement :

“The matter was heard for days. The parties have given their written submission extensively. I shall be at the Bilia at 10-10 AM on next Saturday.” 

Signed (eligible)

6.30 p.m.

06.04.06

25.      The 2nd Arbitrator made the following endorsement :

“We have already exchanged opinion, pl. contact Chairman. Friday 7th April, 06 we can meet. Alternatively you can give your opinion later. But whatever the Chairman says is OK with me.”

Signed (M. Zahir)

6 April 2006

26.      The following day, i.e., 7th April was a holiday, being Friday. On 08.06.2006 (Saturday), when the 3rd Arbitrator went to BILIA at 10:00 a.m., he was given the 100 page typed Award, which had already been signed by the Chairman and the 2nd Arbitrator.

27.      Immediately thereupon, the 3rd Arbitrator made the following observation, which appears at page 100 of the Award :

“I just now saw the opinion this morning at 10.20 a.m. Since I differ with the opinion given herein I will submit my separate opinion.”

Sd/-(M. Amir-Ul-Islam)

Barrister-at-Law, Senior Advocate.

28.      Furthermore, at page 53 of the dissenting opinion, the 3rd Arbitrator made the following observation :

“Though it is a dissenting award, I wish, I could share my views as expressed in this opinion with my co-arbitrators before they signed their award which I did not have the opportunity to see before they were signed by them.”

29.      From the sequence of events noted above, it is apparent that the 3rd Arbitrator was not provided with any scope or opportunity to deliberate on the issues with the other members of the Tribunal and express his views before the Award was made. Moreover, there is no indication in the endorsement made by the Chairman that he had already discussed the matter with the 2nd Arbitrator. Rather, from his endorsement, it appears that the 3rd Arbitrator was asked to be present at BILIA on Saturday at 10:00 in the morning, thereby giving him an impression that there would be a deliberation before making the Award, as was requested for by the 3rd Arbitrator in his letter dated 06.04.2006.

30.      At the penultimate page of Award made by the two Arbitrators, there is a statement to the effect that the 3rd Arbitrator had been consulted. Paragraph 45 at page 99 of the Award reads as under :

“Mr. M. Amir-Ul-Islam (sic), Barrister-at-Law, Senior Advocate, co-arbitrator, has been consulted. He differs from the above finding and has stated that he will give his opinion later on. This award is given on the basis of agreement between the Chairman and another arbitrator, that is, a majority of two in a panel of three arbitrators.”

31.      However, the endorsement made by the 3rd Arbitrator at page 100 of the Award as well as the opening and concluding remarks made by him in his dissenting opinion, quoted above, clearly demonstrate that the 3rd Arbitrator was neither consulted nor given any opportunity to deliberate on the issues with the other two Arbitrators before the Award was finalized and signed. In other words, the Award was made and signed by the Chairman and the 2nd Arbitrator without even the participation, let alone any input, of the 3rd Arbitrator. Evidently, there was an omission or failure on the part of the Chairman of the Tribunal to deliberate on the issues with the 3rd Arbitrator or, at least, provide an opportunity to him to express his views on the issues before making the Award, moreso, when he had expressed such intention immediately after conclusion of the arbitration proceeding, as is evident from the letter dated 06.04.2006, referred to above.

32.      Having discussed the factual aspect and back-ground of the matter, I now intend to deal with the legal aspect of the case.

33.      Section 23 of the Act, which deals with the general responsibilities of the Tribunal, stipulates that the Tribunal shall deal with the dispute submitted to it “fairly” and “impartially”.

34.      Section 25 of the Act provides that subject to the Act, the Tribunal shall follow the procedure “to be agreed on” by the parties in “conducting its proceedings”. A similar provision appears in the ‘United Nations Commission on International Trade Law’ (briefly UNCITRAL), Model Law on International Commercial Arbitration (hereinafter referred to as the ‘Model Law’). Article 28(4) of the Model Law stipulates that in all cases, the arbitral tribunal shall decide in accordance with the terms of the contract.

35.      Section 36(3) of the Act mandates that the Tribunal shall decide in accordance with the terms of the contract.

36.      Upon a combined reading of the sections and articles referred to above, the conclusion that flows therefrom is that the Tribunal, meaning all the members and not just the majority, are not only required to act fairly, but are also required to follow the procedure that has been agreed by and between the parties “in conducting the proceedings”.

37.      The term “proceeding” has not been defined in the Act. However, Article 32(1) of the Model Law provides that the arbitral proceedings are terminated by the final award. In my view, the term ‘proceeding’ includes the final deliberations/discussions that takes place between the members of the Tribunal before an Award is made and signed. Therefore, the duty to act fairly, as envisaged by section 23 of the Act, is not merely confined to the arbitration proceeding itself, but extends to the deliberations that is required to take place between the members of the Tribunal before an Award is made.

38.      Section 37 of the Act provides that the decision of the Tribunal shall be by a majority of its members. Article 29 of the Model Law contains a similar provision.

39.      An Award by the majority connotes an Award where each and every member of the Tribunal actively participates not only in the arbitration proceeding, but also in the deliberation that takes place between the members of the Tribunal before the Award is made and signed. There may very well be an Award by the majority, but that should only be made after there has been a proper and complete deliberation between the members of the Tribunal covering all the issues in dispute between the parties. However, if an Award is made in violation of the aforesaid procedure, it would tantamount to a procedural impropriety and therefore, the resultant Award cannot be termed as an Award by the majority. In my view, this is certainly not the intendment of the parties.

40.      In any event, whether the Award of the Tribunal is ‘unanimous’ or ‘by a majority’, it is imperative that there must be deliberation /discussion between the members of the Tribunal prior to making and signing the Award. This is not an idle formality, but a legal requirement, as reflected in section 23 of the Act, which enjoins a positive duty upon the Tribunal to act ‘fairly’.

41.      Furthermore, the Tribunal is not only expected to act fairly, but it must also act judicially in the discharge of its duty. If it does otherwise, that would be contrary to and violative of the principles of natural justice since judicial acts, by their very nature, are deemed to be amenable to the rules of natural justice.

42.      In Dewan Singh v. Champat Singh, reported in AIR 1970 SC 967, the Supreme Court of India observed :

“The proceedings before the arbitrators are quasi-judicial proceedings. They must be conducted in accordance with the principles of natural justice.”

43.      In the case of S.L. Kapoor v. Jagmohan, reported in AIR 1981 SC 136, it was held :

“Non-observance of natural justice by itself causes prejudice to a party and proof of prejudice to a party and proof of prejudice independent thereof is unnecessary.”

44.      In ‘Law and Practice of International Commercial Arbitration’ (Alan Redfern and Martin Hunter, 3rd Ed., pg. 257), it has been observed :

“A tribunal should act judicially. The duty to act judicially is a duty which extends to all aspect of the proceedings.”

45.      It has further been observed (at page 377) :

“Where an arbitral tribunal is composed of more than one arbitrator, it is self-evident that there should be discussion between the arbitrators before the award is drawn up. Some system of law contain mandatory provisions to this effect but, whether this is so or not, the principle that arbitrators must consult before issuing their award is well-recognised.”

46.      The aforesaid principle was endorsed by the International Centre for the Settlement of Investment Disputes (ICSID) in the matter of Klockner Industries and Others v. United Republic of Cameroon, reported in (1986) XI Yearbook of Commercial Arbitration, 161.

47.      As has been stated so aptly by Mahmood, J more than a century ago in the case of Nand Ram v. Fakir Chand, reported in ILR 7 (1885) All 523 :

“What the parties to a reference to arbitration intended is that the persons to whom the reference is made should meet and discuss together all the matters referred, and that the award should be the result of their united deliberations. This conference and deliberation in the presence of all the arbitrators is the very essence of the arbitration, and the sole reason why the award is made binding.”

48.      In the instant case, the parties had agreed to have their dispute settled by a Tribunal comprising of three members. Both the parties also agreed that the Award of the Tribunal shall be by a majority. It was therefore implied that the Award should be the outcome of the deliberation between each and every member of the Tribunal, even though at the end, the Award may either be unanimous or by a majority. However, in no circumstances can it be inferred that by agreeing to an Award by the majority, the parties had empowered the Chairman to deliberate on the issues with only one member of the Tribunal to the exclusion of the other member before making and signing the Award.

49.      Although section 37(2) of the Act authorizes the Chairman to decided “questions of procedure”, if authorized by the parties or all the members of the Tribunal, it does not confer any authority on the Chairman to make the Award without undertaking a proper and detailed deliberation with the other members of the Tribunal. However, in the instant case the Tribunal or, in any event, the Chairman had acted in contravention of the terms of the agreement between the parties.

50.      Despite having made a request in writing, the 3rd Arbitrator was not given any scope or opportunity to deliberate on the issues with Chairman and the other member of the Tribunal before the Award was finalized and signed. On the contrary, he was merely required to append his signature on a one hundred page typed Award which had already been signed by the Chairman and the 2nd Arbitrator. Even if there was any deliberation before the Award was made and signed, it took place between the Chairman and the 2nd Arbitrator, evidently, without the participation and input of the 3rd Arbitrator. In such premises, the Award in question cannot be termed as an Award by the majority. Consequently, it cannot be said that the Tribunal had either acted fairly or in accordance with the terms of the agreement between the parties, as it was required to do under the Act.

51.      From a careful reading of the provisions laid down in the Act as well as the Model Law, it appears that neither the Act nor the Model Law have considered the scenario where one of the Arbitrator is, in fact, excluded totally from the process of deliberation that is required to take place between the members of a Tribunal before an Award is made. Neither the Act or the Model Law contains any provision to that effect.

52.      In my view, the provisions of section 43(1)(a)(v) of the Act as well as Articles 34(2)(a)(iv) and 36(1)(a)(iv) of the UNCITRAL Model Law are attracted in the instant case, both of which provides for setting aside an Award on the ground that “the arbitral procedure was not in accordance with the agreement of the parties”.

53.      It has also been argued by Mr. Hossain that the Award is liable to be set aside on the ground of being opposed to public policy.

54.      In the case of Hindustan Petroleum Corporation Limited v. Environmental Engineers Ltd. and another, reported in (2001) 2 Comp 79 (Bom), it was held :

“As the expression is incapable of precise definition, those challenges would be available, if the court finds the award abnoxious to its sense of justice, based on settled principles of law, whether as to the conduct of the arbitrator or arbitral proceedings or the award itself. Justice is the beginning and the end. Law must ultimately reach out to justice. Public policy contemplates that, courts must reflect it.”

55.      In Murlidhar Agarwal and another v State of Uttar Pradesh and others, reported in AIR 1974 SC 1924, the Supreme Court of India observed :

“Public policy’, has been defined by Winfield as a principle of judicial legislation or interpretation founded on the current needs of the community.”

56.      In the case of Oil and Natural Gas Corporation Ltd v. SAW Pipes Ltd, reported in AIR 2003 SC 2629, the Supreme Court of India held :          

“ In exercising jurisdiction, the Arbitral Tribunal cannot act in breach of some provision of substantive  law or the provisions of the Act.”

57.      In the case referred to above, the Court further held :

“It can be stated that the concept of public policy connotes some matter which concerns public good and the public interest. What is for public good or in public interest or what would be injurious or harmful to the public good or public interest has varied from time to    time. However, the award which is, on the face of it, patently in violation of statutory provisions cannot be said to be in public interest.”

58.      Evidently, the final deliberation that took place leading to the making and signing of the Award was only between the Chairman and the 2nd Arbitrator to the total exclusion of the 3rd Arbitrator, although the parties had referred the matter to a Tribunal comprising of three members. In my view, this is not what the Act or the Model Law contemplates and this is certainly not what the parties intended. Consequently, upholding the Award would be against the spirit and intendment of the Act and that, no doubt, would be contrary to public policy.

59.      Having considered the submissions advanced by the learned Advocates of the contending sides and in due deference to the decisions cited above, this Court is inclined to hold that the 3rd Arbitrator was neither consulted nor given any opportunity by the Chairman of the Tribunal to deliberate and express his views on the issues before making and signing the Award under challenge.

60.      In the premises noted above, I am of the view that there was non-compliance with the provisions of the Arbitration Act, 2001. Consequently, the Award dated 08.06.2006 made by the majority members of the Arbitral Tribunal is liable to be set aside.

61.      Accordingly, the Award dated 08.06.2006 is hereby set aside.

62.      There will be no order as to costs.

         Ed.