Kerala High Court Sets Aside Arbitral Award For Relying On Findings Of Set-Aside Award

The Kerala High Court has recently set aside an arbitral award after holding that the arbitrator committed a jurisdictional error by treating findings from an earlier arbitral award, which had already been set aside, as 'alive and final.'

A bench comprising Chief Justice Soumen Sen and Justice Syam Kumar V. M. observed the arbitrator was required to consider the dispute afresh but failed to do so. Instead, the arbitrator proceeded on the assumption that conclusions recorded in the earlier arbitration continued to hold the field.

“There has been no independent assessment of the pleadings or re-appreciation of the evidence which, in the context of the present proceedings, the learned Arbitrator is expected and supposed to do before arriving at a finding,” the court said.

The dispute involved partners of Pattasseril Business Associates LLP and had already gone through one round of arbitration. In that round, an arbitral award was passed but was later set aside by the Commercial Court after both sides challenged it. Following this, the award holders sought a fresh reference. A new arbitrator was appointed, and a second award came to be passed, once again in their favour.

Jimmy Elias, who was aggrieved by the second award, approached the Commercial Court under Section 34 of the Arbitration and Conciliation Act. The Commercial Court declined to interfere, holding that it could not re-appreciate evidence or substitute its own view for that of the arbitrator. Elias then filed an appeal before the High Court.

Before the High Court, Elias argued that the arbitrator could not have applied the principle of res judicata or relied on findings from an arbitral award that had already been set aside. He also contended that the Commercial Court failed to deal with this jurisdictional issue. The award holders, on the other hand, submitted that the arbitrator's conclusions were based on an interpretation of the pleadings and the procedure agreed between the parties.

The High Court did not accept this defence. It said the arbitrator had proceeded on a serious misconception by assuming that findings from the earlier arbitration were still “alive and final.” The Bench said that once an award is set aside, the dispute must receive a de novo consideration, and earlier findings cannot be treated as binding.

“This reasoning is fundamentally flawed and suffers from a serious misconception, as the earlier award was set aside and the matter required a de novo consideration,” the court said.

The bench also noted that the arbitrator had failed to decide the counterclaim in accordance with law, despite evidence being available on record. That failure, the court said, independently vitiated the award. It further held that the Commercial Court had not properly exercised its jurisdiction while dismissing the challenge.

Recording a joint request made by both sides, the High Court appointed Former Judge Justice V. G. Arun as the sole arbitrator to decide the disputes afresh. The parties agreed that no further pleadings would be filed and that the matter would be decided on the basis of the existing material on record.

For Appellant: Senior Advocate Anil Xavier, Advocates E.M Murugan, K.R Lekshmi, P.R Prateesh, P.Rakesh (Vaikom) and Nileena V.P

For Respondents: Advocates Liju V Stephen, Indu Susan Jacob and Taj K Tom