Arbitral Award Based On Undisclosed Material Violates Principles Of Natural Justice: Bombay High Court

The Bombay High Court on 8 June held that an arbitral award becomes patently illegal when the tribunal relies on material not disclosed to a party or taken from external sources without granting an opportunity to respond.

Justice Sharmila U Deshmukh while hearing a petition filed by Eicher Motors Ltd. (Eicher), set aside an award granting interest and costs in favour of Ashutosh Ranjit Majumdar after finding that the tribunal relied on undisclosed Yahoo Finance data while computing compensation. The Bench held:

“In the present case, after conclusion of hearing, the material was sourced by the Arbitral Tribunal itself without supplying a copy to the Petitioner and without granting any opportunity to the Petitioner. The computation based on such document would amount to patent illegality.”

Ashutosh Ranjit Majumdar surrendered an original share certificate for 100 shares of Eicher on 4 March 2024 and sought issuance of 1000 new shares. Eicher did not issue the shares or return the certificate even after eight months.

Ashutosh initiated arbitration proceedings claiming Rs. 79 lakhs, including market value of shares, alleged financial hardship linked to medical needs, legal expenses, and damages.

The tribunal directed issuance of 100 shares and awarded Rs. 4,83,474 as interest at 12% per annum, computed using the Yahoo Finance closing price of 4 March 2024, along with Rs. 2,00,000 as costs. Eicher complied with the direction on share issuance but challenged the monetary award under Section 34 of the Arbitration and Conciliation Act, 1996.

Eicher argued that Ashutosh failed to prove any financial loss and that the tribunal relied on material never placed on record, thereby violating Section 24(3) and denying it an opportunity to respond.

Ashutosh submitted that the amount represented interest for delayed issuance of shares and not damages, and therefore did not warrant interference under Section 34 proceedings.

The High Court held that the tribunal awarded compensation without any evidentiary basis and instead relied on material it sourced independently without disclosure, amounting to patent illegality under Section 34(2A) of the Arbitration and Conciliation Act.

Relying on Union of India v Recon, Mumbai and Ministry of Shipping, Road Transport and Highways v Additional Commissioner, Nagpur, the Bench reiterated that an award is vitiated when it rests on no evidence or on material introduced behind the back of a party after hearings conclude.

Justice Deshmukh also observed that Section 24(3) mandates disclosure of all documents relied upon in arbitral proceedings and held that Ashutosh failed to lead evidence of loss of profit or financial loss, while the tribunal independently used Yahoo Finance data without sharing it with Eicher.

Accordingly, the High Court allowed the petition and set aside the award to the extent it granted Rs. 4,83,474 as interest and Rs. 2,00,000 as legal costs.

For Petitioner: Pranav Nair, Fleur D' Souza i/b Asahi Legal

For Respondent: Hursh Meghani, Vinayak Pandit i/b Ajinkya Udane