Sukhbir Singh vs M/S Hindustan Petroleum ...

on 16 January, 2020

Delhi High Court

Sukhbir Singh vs M/S Hindustan Petroleum ... on 16 January, 2020
$~
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Reserved on: 18th October, 2019
Pronounced on: 16th January, 2020
+ O.M.P. 1118/2014

SUKHBIR SINGH ..... Petitioner

Through: Mr. Sanat Kumar, Senior Advocate
with Mr.Vinayak Batta, Advocates.

versus

M/S HINDUSTAN PETROLEUM

CORPORATION LTD ..... Respondent
Through: Mr.Anupam Srivastava & Ms.Divya
Joshi, Advocates.
%
CORAM:
HON'BLE MR. JUSTICE PRATEEK JALAN

JUDGMENT

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 petitioners 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

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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
respondents 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 petitioners 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 petitioners 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 respondents witness.

10. The arbitrator made his award on 09.09.2014. He declined the petitioners 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 respondents 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.

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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 arbitrators failure to permit cross-examination of the respondents 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 petitioners dealership. In the context of the disputes raised, he submitted that the petitioners
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 petitioners 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 220
in 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. 739 respectively. He also cited the judgment
of a Division Bench of the Bombay High Court in Harinarayan Bajaj vs. Madhukar Sheth, 2015 (3)

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Arb.L.R. 234 (Bom) in this connection.

17. Factually, Mr.Srivastava submitted that the petitioners application before the arbitrator was
made only on 04.04.2014 -more than six months after the affidavit of evidence was filed by the
respondents 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
respondents 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 petitioners 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:

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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:

[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

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(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.

[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.] [(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.

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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
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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."

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[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):

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"C5: Opportunity to controvert opponents 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 opponents case by
cross-examining the witness and leading evidence in rebuttal, and to controvert his
opponents 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

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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.

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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":

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"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.

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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.

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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).

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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]

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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
partys 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

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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 partys 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 petitioners 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 respondents 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 respondents
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

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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:

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"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 arbitrators 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 partys 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.

PRATEEK JALAN, J.

JANUARY 16, 2020 sc/s

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