Rajasthan High Court rules that an arbitration committee is not valid if it is formed by one of the parties involved in the dispute.
In a case regarding the management of Shri Maheshwari Samaj in Jaipur, the Rajasthan High Court noted that the formation of the Arbitration Committee is not valid if it is created by one of the parties involved in the dispute. The Arbitration Application was submitted to the Jaipur Bench of the High Court under Section 11(5) and (6) of the Arbitration and Conciliation Act, 1996. The applicant sought to establish an Arbitral Tribunal to resolve a disagreement about amendments made to the Constitution of ‘Shri Maheshwari Samaj’, based on Clause 39 of the original constitution (now Clause 50 of the amended version).
Justice Sudesh Bansal, in a Single-Judge Bench, stated that “Shri Maheshwari Samaj, Jaipur is clearly an interested party and also one of the disputing parties.” Advocate Pratyush Sharma represented the Petitioner, while Advocate Prakul Khurana represented the Respondent. The case details indicated that ‘Shri Maheshwari Samaj, Jaipur’ is a registered society under the Rajasthan Societies Act, 1958, and has a written constitution to guide its operations. The applicant is a member of ‘Shri Maheshwari Samaj’. The applicant claimed that after the General Election of ‘Shri Maheshwari Samaj’ in 2019, the Executive Committee members were elected for three years. However, the Executive Committee made certain amendments to the original constitution during an extraordinary General Body Meeting in 2020, which the applicant argued were done arbitrarily and without the consent of all members.
Sharma argued that the creation of a five-member high-level Committee to serve as the Dispute Resolution Committee is not in line with the A&C Act. This Committee was appointed solely by the non-applicant, who is also a party in the dispute, without any input from the applicant regarding the selection of Arbitrators. Therefore, it was requested that the Court establish an independent, impartial, and neutral Arbitration Tribunal to address the issues concerning the formation of ‘Shri Maheshwari Samaj’. Conversely, the non-applicant, Shri Maheshwari Samaj, claimed that the application has already been submitted to the Arbitration Committee, where the dispute is currently being reviewed. Thus, they argued that the request for a new Arbitration Tribunal is misguided and should be dismissed outright.
Citing the Supreme Court’s ruling in Perkins Eastman Architects DPC Vs. HSCC (India) Limited [(2020) 20 SCC 760], the Bench noted, “It is well established that a party or official with an interest in the dispute cannot appoint an Arbitrator. The reasoning behind this principle is clear: those who have a stake in the outcome should not have the authority to choose the Arbitrator.”
The Bench clarified that even though a new Executive Committee was formed after the 2022 elections, the current General Secretary of Shri Maheshwari Samaj, Jaipur, who is part of the Executive Committee, also has a conflicting interest in the dispute involving the applicant and other similar members. The Court stated that it is not commenting on the qualifications of the members of the Resolution Committee set up by the non-applicant. However, since this Committee is formed by a party involved in the dispute, it is challenging to consider the appointment of the Arbitration Committee as valid for resolving the current issue. The Bench emphasized that arbitration is an alternative way to resolve disputes and noted that, according to the Arbitration and Conciliation Act, there is no restriction on considering a sole arbitrator, even if the parties initially agreed to a panel of five arbitrators. Given the nature of the dispute, the Court believes that a sole Arbitrator is sufficient.
Therefore, the High Court approved the arbitration application and appointed Justice Mahesh Bhagwati, a former High Court Judge, as the sole Arbitrator to handle the dispute between the parties according to the Arbitration and Conciliation Act of 1996.
Cause Title: Surendra Sarda v. Shri Maheshwari Samaj, Jaipur [Neutral Citation- 2024:RJ-JP:46465] Appearance:
Petitioner: Advocate Pratyush Sharma
Respondent: Advocate Prakul Khurana
