The Delhi High Court has held that merely proceeding ex parte against a party in arbitration does not automatically justify rejection of counterclaims that have already been duly filed and form part of the arbitral record.
Justice Harish Vaidyanathan Shankar was dealing with a Section 34 petition filed by Eureka Forbes challenging an arbitral tribunal’s decision to reject its counterclaim after proceeding ex parte against the company due to non-appearance.
The Court drew a distinction between an order proceeding ex parte which is procedural in nature and rejection of a substantive counterclaim, which amounts to a final determination of rights and therefore constitutes an interim award amenable to challenge under Section 34 of the Arbitration and Conciliation Act.
The High Court observed that Eureka Forbes had already filed its counterclaim in compliance with the arbitrator’s directions and that such claims could not be treated as extinguished merely because the party failed to appear on a subsequent hearing date. The Court held that rejection of the counterclaims solely on the basis of the ex parte order disclosed “no valid reason whatsoever.”
It further noted that the arbitral proceedings concerning the counterclaim were still at the stage of completion of pleadings, and even the opposing party had sought time to file its response. In such circumstances, the Court held that imposing the drastic consequence of rejecting substantive claims was legally untenable.
Holding that the Arbitration Act contemplates continuation of proceedings in case of default not automatic dismissal of substantive claims for non-appearance, the Court set aside the interim award rejecting the counterclaims.
Appearances:
For the Petitioner: Dr. Amit George, Mr. Shivankar Sharma and Mr. Ayush Singh, Advocates.
For the Respondent: Mr. Shreyans Jain, Ms. Harshita Singh and Mr. Harshit Bhardawaj, Advocates.
