Traviera Silk Mills Pvt. Ltd. vs. Toto Toya Spin Pvt. Ltd. Arbitration Award Quashed Due to Lack of Agreement and Unilateral Tribunal Appointment
In a significant ruling, the Bombay High Court, presided by Justice Gauri Godse, has set aside an arbitral award in the case of Traviera Silk Mills Pvt. Ltd. v. Toto Toya Spin Pvt. Ltd. The court determined that the arbitral tribunal was constituted unilaterally by the Bombay Yarn Merchants Association and Exchange Limited without a valid arbitration agreement between the parties. This decision underscores the critical principle of mutual consent in arbitration proceedings, emphasizing that unilateral appointments are against Indian public policy.
The dispute originated from an alleged non-payment by Traviera Silk Mills Pvt. Ltd., which prompted Toto Toya Spin Pvt. Ltd. to invoke arbitration through the association. Traviera Silk Mills, not being a member of the association, contended that there was no arbitration agreement binding them to such proceedings. Despite this, the association constituted an arbitral tribunal unilaterally, which eventually ruled in favor of Toto Toya Spin.
The court meticulously examined the provisions of the Arbitration and Conciliation Act, 1996, particularly Section 12(5), which renders any award by an ineligible arbitrator a nullity. Justice Godse highlighted that the absence of a valid arbitration agreement and the unilateral appointment of arbitrators invalidated the award, making it unsustainable under Indian law.
Citing precedents like Bhadra International (India) Pvt. Ltd. vs. Airports Authority of India, the court reinforced that parties must have equal say in the constitution of an arbitral tribunal. Unilateral appointments, where one party has undue influence over the appointment process, violate the principle of equal treatment and the public policy of India.
The court also addressed the issue of waiver, clarifying that participation in arbitration proceedings does not constitute a waiver of the right to object to jurisdiction unless there is an express agreement in writing. This ruling serves as a critical reminder to parties engaged in arbitration to ensure that agreements are explicit and mutually accepted to avoid similar disputes.
In conclusion, the Bombay High Court's decision highlights the importance of adherence to legal protocols in arbitration and reinforces the judiciary's role in upholding the sanctity of arbitration agreements and the principle of party autonomy.
Bottom line:-
Arbitration - Unilateral constitution of arbitral tribunal by association without an arbitration agreement is invalid and against public policy. Award passed by such arbitral tribunal is a nullity under Section 12(5) of the Arbitration and Conciliation Act, 1996.
Statutory provision(s): Arbitration and Conciliation Act, 1996 Sections 12(5), 34
Traviera Silk Mills Pvt. Ltd. v. Toto Toya Spin Pvt. Ltd., (Bombay) : Law Finder Doc id # 2918773
