The primary objective of an arbitrator, duly appointed to act upon a dispute, is to ensure that proper and clear adjudication of the dispute is made to conclude a dispute. An arbitrator has to adjudicate upon the basis of the documents showcased and facts narrated with implementation of proper legal interpretation and understanding. However, in cases where the dispute has been settled by way of mediation proceedings, an arbitrator cannot issue any directions adverse to the award passed by way of settlement.

In two separate petitions filed under Section 34 of the Arbitration and Conciliation Act challenging the award passed by the arbitrator with reference to the directions passed by the Arbitrator in relation to the award passed in mediation proceedings, the Delhi High Court observed that the directions issued by the Arbitrator were not in conformity with the provisions of Section 23 of the Arbitration and Conciliation Act as they were not issued by way of adjudication. In the matter of Surinder Kumar Beri v/s Deepak Beri, the Hon’ble Justice Jayant Nath held that An arbitrator cannot issue further ‘directions’ in an award based on settlement, without hearing both the parties in a process of adjudication.

It was observed that the arbitrator had issued certain ‘directions’ which did not form a part of the settlement agreement between the parties to the dispute and had indirectly been issued against the parties that were not a party to the dispute in the first place, thereby making the following observations:

“30. In the present case it is clear that the directions which are passed by the learned Arbitrator are not contained in the agreement between the parties. No doubt these directions can be said to be an attempt by the learned Arbitrator to try and execute/implement the terms and conditions agreed upon by the parties. However, such directions could be passed only by the process of adjudication after having concluded the mediation proceedings. It appears that the learned arbitrator has mixed up the mediation process and the adjudicatory process based on the hearings which have been conducted and the exchange of emails by the parties. He has recorded a settlement, passed an award based on the settlement and has also passed further directions which could only have been passed pursuant to adjudication.

31. It is clear that the directions in the award have been passed contrary to the principles of natural justice without affording any reasonable opportunity to the petitioner to file his defence and make his submissions on the merit of the case. Acting with undue haste, the learned arbitrator has chosen to add additional directions to the parties which are not part of the Settlement Agreement.

32. Directions that have been passed are clearly illegal and contrary to the mandatory and statutory procedure. The learned Arbitrator cannot suo motu on his own de hors the procedure prescribed under the Arbitration Act pass such directions. Hence, the award to the extent that it gives directions de hors the agreement between the parties, namely, Annexure A, B and C to the Award are illegal and being severable, is set aside. Such directions are contrary to the fundamental policy of Indian Law.”

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Judgment: Surinder Kumar Beri and Anr Versus Deepak Beri and Anr