Model Public School (MPS) is a very reputed school in Delhi having its branches across all the major cities in India. Praj is engaged in the business of providing transport services and carries on his business under the

CS Professional · Arbitration, Mediation and Conciliation · PYQS · June 2024
Model Public School (MPS) is a very reputed school in Delhi having its branches across all the major cities in India. Praj is engaged in the business of providing transport services and carries on his business under the name and style M/s. Triumphant Transports ('TT'), a proprietorship concern. MPS had floated a tender calling for quotes, for contracting services relating to driving, managing its buses and to provide additional transportation services, as and when needed. Praj had some contact in the senior management of MPS and was able to put in a good word about himself and his track record before the committee of the school. After a detailed evaluation, the management of the school approved TT's proposal and he was empaneled as the transport provider for the school. Accordingly, on April 1, 2018 the parties entered into an Agreement, whereby TT agreed to provide transport services to MPS. The school owned twenty-two buses, which TT agreed to operate and maintain. TT was required to provide conductors, drivers, supervisors, cleaners, full-time mechanics, and other personnel. In addition, TT also agreed to provide additional buses for the purposes of picking up and dropping off the students and the employees of MPS. The Agreement was for a term of eight years that is, from April 1, 2018 till March 31, 2026 with the first five years as a lock in period. Further, TT agreed to strictly abide by the obligations stipulated in the Agreement such as, adhering to the timing for transportation of students; regular maintenance of the buses, maintaining motorable conditions of the buses; complying with the safety guidelines issued by the Supreme Court of India; limiting the number of students transported in each bus to the permissible limit; and, in the event of breakdown of buses, providing alternate vehicles etc. For the initial year, the services were provided without any issues and the payments were also received by TT in a timely manner. However, after the first year, there was a considerable delay in payments made to TT and he was having challenges, as the working capital was getting struck. In September 2019, TT sent a communication to the Principal of the school to release the outstanding payments as per terms of the Agreement. He further stated that even though the school was collecting the transportation fee from the students well in advance, the school was making payments to him in small instalments after a substantial delay. The Principal of MPS responded by an e-mail, alleging deficiencies in the services provided by TT. He also informed that MPS would be compelled to take strict action against TT, if the said deficiencies were not rectified within a period of two weeks. In first week of November 2019, through a communication MPS terminated the Agreement with TT. Aggrieved by the termination of Agreement, TT invoked the arbitration clause in terms of Clause 36 of the Agreement. Subsequently, the Court, by an order dated April 6, 2020, directed the Delhi International Arbitration Centre (DIAC) to appoint an arbitrator to adjudicate the disputes between the parties. During the arbitration, MPS also produced evidences including the complaints filed by parents of the students against TT. In the background of above facts, answer the following: (e) State the course of action available to Arbitral Tribunal, when the school did not appear before the arbitral tribunal or object on service of notices. Also comment, whether an arbitral award is binding on a third party, who is not a singnatory to the arbitration agreement ?

Answer & Explanation:

When an arbitration is invoked between the parties and respondent do not appear or object upon notices for the reason of non-accepting the venue as feasible, then the party seeking arbitration will have the right to go ahead with the proceedings and the arbitrator can pass the award in absence of the respondent, the same award can be enforced by the appellant in accordance with Section 36 of Arbitration and Conciliation Act, 1996. Later the respondent can challenge the award under Section 34, reasoning the non-appearance to the arbitration proceedings. The Arbitral Tribunal can take necessary course of action accordingly. Whether an arbitral award is binding on a third party, who is not a signatory to the arbitration agreement? To resolve this issue and provide the clarity on the Section 35 of the Arbitration and Conciliation Act. 1996, the Supreme Court in the case of Cheran Properties Limited v. Kasturi and Sons Limited and Ors. 10 held that Section 35 of the Arbitration and Conciliation Act, 1996 states that an arbitral award is "binding on the parties and persons claiming under them". The expression "persons claiming under them" is a legislative recognition of the doctrine that besides the parties, an arbitral award binds every person (party not a signatory to the arbitration agreement) whose capacity or position is derived from and is the same as a party to the proceedings. This expression was held to widen the net to include those who claim under the award, irrespective of whether such person was a party to the arbitration agreement or the arbitral proceedings. In view of above case, it can be said that an arbitral award binds every person even to party (signatory to Arbitration Agreement) not a signatory to the arbitration agreement, whose capacity or position is derived from and is the same as a party to the proceedings.

Topics: Arbitration Proceedings

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