Kerala High Court: In an appeal arising from a second round of arbitration where a fresh arbitral award was passed in favour of certain claimants and later sustained under Section 34. Arbitration and Conciliation Act, 1996 (A&C Act) by the Commercial Court, the Division Bench of Soumen Sen*, CJ., and Syam Kumar V.M., J., set aside both the arbitral award and the Section 34 order, and held that the findings of an already set aside earlier award cannot be treated as “alive and final” and that the arbitrator committed a jurisdictional error by invoking res judicata without undertaking a de novo consideration. The Court appointed a new arbitrator, directing that the matter be decided on the existing record, without further pleadings or fresh evidence, and be disposed of expeditiously.
Background
The award in the first arbitration proceeding was challenged by both sides, resulting in an order under Section 34, A&C Act by the Commercial Court at Ernakulam. Thereafter, a fresh reference was initiated in which an arbitrator was initially appointed and later substituted by Order dated 24 August 2022. In the fresh reference, an award was passed in favour of Respondents 1 to 3, which was challenged under Section 34, A&C Act. The Commercial Court refused to interfere, stating that it was no longer open under Section 34, A&C Act to re-appreciate the evidence and arrive at a different finding.
An appeal was preferred against the Commercial Court’s order, and it was urged that the impugned order was unreasoned. The appellant’s counsel submitted that a Court deciding an application for setting aside an arbitral award must indicate, even in brief, the reasons for not accepting the arguments advanced, especially when a fundamental issue was raised regarding the jurisdiction of the arbitrator to apply res judicata in deciding the fresh reference, notwithstanding the fact that the earlier award was set aside. It was alleged that in the present reference, the arbitrator mechanically applied his mind to the facts and arrived at a finding based on the findings in the earlier proceedings, that was set aside by the Commercial Court.
On the other hand, the award holders contended that the procedure under Section 19, A&C Act had been scrupulously followed. They stated that on 3 March 2023, the parties agreed to the procedure based on which the Arbitral Tribunal had proceeded and therefore it was not open for the appellant to assail the said award on the ground of any procedural irregularities or defects. It was urged that, based on the procedure agreed upon, the Arbitral Tribunal proceeded correctly, and the Commercial Court’s dismissal under Section 34, A&C Act deserved appreciation.
Analysis and Decision
The Court observed that the arbitrator had committed a jurisdictional error, as noted in the Order dated 31 December 2022, by holding that the findings in the award of the previous arbitrator, which had not been interfered with by the District Judge while exercising jurisdiction under Section 34, A&C Act, remained “alive and final”. The Court opined that this reasoning was fundamentally flawed and suffered from a serious misconception, as the earlier award was set aside and the matter required a de novo consideration. The Court highlighted that a similar misconception arose from the observation that the findings in the earlier proceedings would operate as res judicata. The Court further opined that there had been no independent assessment of the pleadings or reappreciation of the evidence, which, in the context of the present proceedings, the arbitrator was expected to do before arriving at a finding. The Court also observed that the Commercial Court, in deciding the matter had not properly exercised jurisdiction under Section 34, A&C Act.
The Court noted the award holders’ submission that there had been an adjudication with fresh application of mind as far as Issues 1 to 12 were concerned but opined that it was fairly conceded that the counter claim had not been considered based on the evidence already on record. The Court observed that it is trite law that if the arbitrator fails to decide the counter claim in accordance with law, it will vitiate the award. It is within the arbitrator’s jurisdiction to decide both the claim and counter claim, and since the counter claim had not been decided, the arbitrator had failed to exercise jurisdiction in accordance with the A&C Act.
The Court noted the request by the counsels for both sides for appointing an Arbitrator to resolve the dispute, and referred to Gayatri Balasamy v. ISG Novasoft Technologies Ltd., (2025) 7 SCC 1, to record the same. By consent of the parties, the Court appointed a former Judge of the Court as the arbitrator to decide the disputes between the parties. Both the parties agreed that no further pleadings would be filed before the arbitrator, that the record of the earlier proceedings would form part of the present arbitral proceedings, that the matter would be decided based on the existing materials, and that no fresh evidence would be adduced.
The Court directed the parties to file compilations of all pleadings and documents forming part of the earlier reference as may be directed by the arbitrator. It was further directed that the remuneration of the arbitrator would be fixed at the first sitting, taking guidance from the Fourth Schedule to the A&C Act, without embargo regarding the fees contemplated therein.
Accordingly, the Court, while allowing the arbitration appeal, set aside the award and the impugned Section 34 order, clarifying that it had not gone into the merits of the award. The Court directed that the arbitrator would be entitled to all necessary secretarial services and assistance, and considering the long pendency, the matter must be disposed of as expeditiously as possible.
[Jimmy Elias v. Elizabeth Jasmine, 2026 SCC OnLine Ker 2320, decided on 3-2-2026]
*Judgment authored by: Chief Justice Soumen Sen
Advocates who appeared in this case:
For the Petitioner: E.M. Murugan, K.R. Lekshmi, P.R. Prateesh, P. Rakesh (Vaikom), Nileena V.P., Anil Xavier (SR.), Advocates.
For the Respondents: Liju. V. Stephen, Indu Susan Jacob, Taj K. Tom, Advocates.
Buy Arbitration and Conciliation Act, 1996 HERE
