The Bombay High Court on November 01, 2022, in the matter of Sushma Arya and Ors. versus Palmview Overseas Ltd. and Ors., observed that the issue whether the arbitration was invoked and the Statement of Claim was filed, by a person duly authorized by the claimant, goes to the root of the matter, with respect to which the arbitral tribunal may make a final arbitral award.  The court held that once the arbitral tribunal had ruled that the specified person had no authority to invoke arbitration and depose on behalf of the claimant, in view of the fact that the alleged board resolution was not proved by it as valid, the tribunal could not have ruled that the said defect was rectifiable. The Court added that ratification can only be of an act which is otherwise valid.

In this matter, the petitioners – Ravi Arya and Ravi Arya Hindu Undivided Family (“HUF”), referred to as the RA Group, are Promoters/ Directors of AISCO. The respondent- Palm View Investment Overseas Limited (“PVIL“), is a Company incorporated under the British Virgin Island Laws (“BVI Laws“).  Under a Share Purchase and Share Subscription Agreement executed between the respondent and the petitioners, the respondent PVIL was inducted as a shareholder in AISCO.  After certain disputes arose between the parties, a board resolution was allegedly passed by PVIL, authorizing a person to initiate arbitration proceedings and to depose before the Arbitral Tribunal on its behalf. The authorized person subsequently invoked the arbitration clause on behalf of PVIL.

During the arbitral proceedings, the petitioners filed an application under Section 31 read with Section 32 of the Arbitration and Conciliation Act, 1996 (“A&C Act“) for dismissal of the respondent’s claim, seeking a declaration that the statement of claim was presented on behalf of the respondent PVIL without any authority. The petitioner contended that the person allegedly authorized had no authority to invoke the arbitration clause.  The Arbitral Tribunal passed an order, granting opportunity to the claimant/ PVIL to either prove that the resolution passed by it, authorizing the specific person to initiate arbitration proceedings, was valid under the BVI Laws, or to file a fresh board resolution. The respondent PVIL communicated its decision of filing a fresh resolution, to the Tribunal.

The petitioner filed a petition under Section 34 of the A&C Act before the Bombay High Court, challenging the above order passed by the Tribunal.

Upon analysis of facts, circumstances and contentions of the parties, the Bombay High Court ruled that once the Tribunal had held that the specified person had no authority to invoke arbitration and depose on behalf of the respondent, in view of the fact that the alleged board resolution was not proved as valid under the BVI laws, the Tribunal could not have ruled that the said defects could be rectified or remedied. While holding that ratification can only be of an act which is otherwise valid, the Court ruled that the Arbitral Tribunal had exercised jurisdiction in equity which was impermissible in view of Section 28(2) of the A&C Act.

Therefore, the Court held that the interim award/ order passed by the Tribunal was in contravention of the public policy of India and the fundamental policy of Indian law. The Court thus set aside the order passed by the Tribunal allowing the respondent PVIL to file fresh resolution for authorisation.