Institution of an Arbitration proceedings without authority is not a curable defect.

In the matter of Sushma Arya and Ors Vs. Palmview Overseas Ltd. and Ors., Comm. Arbitration petition (L) No. 25249 of 2022, decided by Hon’ble Bombay High Court on 01.11.2022

Facts of the case-

When disputes arose between the parties on account of the Share Holding Agreement, claimant- PVIL invoked the arbitration clause vide letter dated 30.04.2018. On 16.07.2018, PVIL passed a board resolution authorising Mr. Sunil Jain to initiate the arbitration proceedings and to depose on behalf of PVIL. PVIL filed its Statement of Claim and after filing his evidence affidavit, Mr. Jain was cross-examined on behalf of the Petitioners.

The Respondents thereafter filed an application u/s 31 r/w sec 32 of the Arbitration Act seeking a declaration that the invocation notice as well as the claim are presented without any authority and for dismissal of the claim. The arbitrator vide impugned order dated 16.06.2022 concluded that the said board resolution was invalid however, held that the said defect is curable and also gave an option to the Claimant to rectify the said defect/irregularity. The Respondents challenged the said order u/s 34 of the Act.

Issue raised before the Court-

Whether after accepting the invalidity of the Board Resolution, the Arbitrator was justified in treating it as a curable defect/irregularity.

Observation and Findings of the Court–

The Court firstly dealing with the maintainability of the petition, decided to treat the impugned order as an interim award and held that the same is amenable to a challenge u/s 34 petition as the issue whether the arbitration was invoked, the SoC was filed and was sought to be substantiated by a witness duly authorised, goes to the root of the matter.

The Court further observed that the Claimant- PVIL is a foreign company incorporated under BVI Laws with a sole director which is a corporation known as Execorp which is also registered under BVI laws. Thus, the sole Director of PVIL is not a natural person, but a body corporate. As Mr. Jain did not prove the validity of the board resolution on the application of BVI laws, it had to be tested by applying Indian Law. Under the Companies Act, 2013, a single Director of a company has to be a natural person. The Director of the Claimant is an artificial person whose source of incorporation is not known and the resolution further does not even reveal the identity of the person who has signed on behalf of the Execorp. Therefore, the said Board Resolution cannot be held a valid resolution under the Companies Act, 2013.

The Court observed that the invalidity of the Board Resolution goes to the root of the matter as to the authority of Mr. Sunil Jain to institute the claim and to depose on behalf of the Claimant-PVIL. The Hon’ble Court also observed that the findings of the Arbitral Tribunal were contrary to each other and held that the defect was not such which could have been rectified/remedied. Ratification can only be of an act which is otherwise valid.

Setting aside the interim award being in contravention of the public policy of India and fundamental policy of Indian law, the Hon’ble Court also allowed the application u/s 31 r/w sec 32 of the 1996 Act.