Himachal Pradesh HC sets aside Rs 95 crore ex parte arbitration award, flags due process violation

Shimla (Himachal Pradesh) [India], July 11 (ANI): The Himachal Pradesh High Court has set aside an ex parte arbitration award of over Rs 95 crore passed in favour of Delhi-based Medipole Pharmaceutical India Pvt. Ltd. against Bihar Medical Services and Infrastructure Corporation Ltd. (BMSICL), citing serious procedural violations and denial of fair hearing.
A division bench of Chief Justice GS Sandhawalia and Justice Ranjan Sharma delivered the verdict while allowing the writ petition and arbitration challenge filed by BMSICL, which had argued that it was not given a proper opportunity to present its case during the COVID-19 pandemic.
"This Court is of the considered opinion that the arbitral proceedings conducted ex parte in March 2021 during the peak of Covid, without ensuring sufficient notice and hearing to the petitioner, fall within the grounds of misconduct and procedural irregularity as envisaged under Section 34(2)(iii) and (iv) of the Arbitration and Conciliation Act, 1996," the High Court held in its judgment pronounced on Friday.
The award, passed on April 6, 2021, by an arbitrator appointed by the Himachal Pradesh Micro and Small Enterprises Facilitation Council, had granted Medipole Pharma Rs 95.71 crore, including enhanced penal interest under the MSMED Act. The original claim was Rs 14.5 crore.
The court noted that the arbitration proceedings were conducted in "utmost haste," beginning on February 16, 2021, and concluded in under 25 days, with the award passed on April 6, 2021 -- just one day after the claimant submitted evidence by affidavit.
The judges observed: "It is apparent from the record that the Supplier's claim amount underwent multiple enhancements, ultimately being inflated to over Rs 95 crore on the basis of compounded penal interest without proper scrutiny or opportunity of rebuttal."
The bench added, "There is no material to show that the Buyer was provided with reasonable time or the chance to effectively participate in the proceedings, especially considering pandemic-related travel constraints from Patna."
While upholding the jurisdiction of the Himachal Pradesh MSME Facilitation Council to act as arbitrator under Section 18(4) of the MSMED Act, the court emphasised that even special statutes cannot override the fundamental right to a fair hearing.
"In exceptional cases, even where an alternate remedy exists, the High Court can exercise its jurisdiction under Article 226 of the Constitution to ensure justice, especially where the statutory process is rendered illusory by onerous conditions such as mandatory 75 per cent deposit," the bench observed, referring to recent judgments by the Supreme Court.
The court ordered the arbitration proceedings to be reinitiated afresh, directing the Facilitation Council to ensure compliance with natural justice and legal norms under both the MSMED Act and the Arbitration and Conciliation Act.
The judgment is significant as it sets a precedent for scrutinising ex parte arbitral awards issued under the MSMED framework, particularly where large monetary claims and government entities are involved. (ANI)