Order To Proceed Ex Parte In Arbitration Is Procedural, Not Challengeable Under Section 34: Delhi High Court

The Delhi High Court has recently held that while a procedural direction to proceed ex parte in arbitration is not challengeable under Section 34 at that stage, the outright rejection of a counterclaim for non-appearance amounts to a final determination of substantive rights.

Setting aside the arbitral tribunal's rejection of Eureka Forbes Limited's counterclaim against Indian Railway Catering and Tourism Corporation (IRCTC), the Court restored it for adjudication.

Justice Harish Vaidyanathan Shankar observed, “An order directing that proceedings continue ex parte is essentially procedural in nature and is intended to regulate the conduct and progression of arbitral proceedings. An order, by itself, neither adjudicates the substantive disputes between the parties nor determines any rights or liabilities finally and conclusively.”

"the continuation of arbitral proceedings on an ex parte basis, qua the Petitioner, cannot be construed as a final or substantive adjudication of rights. The Impugned Order I, to the extent that it merely directs continuation of proceedings ex parte in relation to the Respondent‟s claims, does not partake the character of an interim award within the meaning of the A&C Act. Consequently, the said procedural direction is not amenable to challenge under Section 34 of the A&C Act at this stage," it added

However, the Court held that rejection of Eureka Forbes' counterclaim stood on a different footing, observing, “The rejection of the counterclaim by the Impugned Order I effectively results in a final determination of the Petitioner's counterclaims, leaving no scope for their further consideration by the learned Arbitral Tribunal. The order thus possesses the essential attributes of finality and binding effect in respect of the counterclaims.”

The dispute arose from IRCTC's June 20, 2015 tender for operation and maintenance of water vending machines at railway stations.

Eureka Forbes secured Cluster No. 2 through a Letter of Award dated September 4, 2015 at an annual licence fee of ₹50,88,000, exclusive of taxes. The parties later executed a Licence Agreement on September 14, 2016 for a five-year term. Disputes later surfaced over alleged non-payment of licence fees by Eureka Forbes.

IRCTC invoked arbitration on February 20, 2023 after disputes over unpaid licence fees. The Delhi High Court later appointed former District and Sessions Judge B.B. Chaudhary as sole arbitrator after the parties failed to agree on an appointment.

IRCTC filed its statement of claim on May 6, 2024. Eureka Forbes filed its statement of defence on June 24, 2024 and later lodged a counterclaim worth ₹2,53,13,571 on July 10, 2024.

No one appeared for Eureka Forbes on July 31, 2024. On that date, however, IRCTC itself sought time to file its reply to the counterclaim. The matter was adjourned.

When the matter came up again on August 21, 2024, the sole arbitrator proceeded ex parte against Eureka Forbes and simultaneously rejected its counterclaim.

Eureka Forbes' plea seeking recall of the order and restoration of the counterclaim was dismissed on October 21, 2024, prompting the company to approach the High Court.

Before the Court, Eureka Forbes argued that rejection of its counterclaim amounted to a final adjudication of substantive rights. IRCTC argued that the impugned orders were merely procedural and that Eureka Forbes had failed to diligently participate in the arbitral proceedings.

The High Court found it significant that IRCTC had itself sought time to complete pleadings on the counterclaim. It noted that the proceedings concerning the counterclaim had not moved beyond the pleadings stage.

Finding no deliberate delay or obstructive conduct by Eureka Forbes, the Court held, “the mere fact that a party has been proceeded ex parte, as in the present case in relation to the counterclaims, does not, ipso facto, justify the striking off or rejection of counterclaims that have already been duly filed and form part of the record. Such counterclaims do not stand extinguished merely on account of the absence or non-participation of the party concerned.”

Holding that the rejection was inconsistent with principles of natural justice embodied in Section 18, the Court restored the counterclaim for adjudication before the arbitral tribunal.

For Petitioner (Eureka Forbes Limited): Advocates Dr. Amit George, Shivankar Sharma, Ayush Singh.

For Respondent (Indian Railway Catering and Tourism Corporation): Advocates Shreyans Jain, Harshita Singh, Harshit Bhardawaj.