Arbitration has now become a popular way of dispute resolution mechanism and therefore, the observance of principles of natural justice in the arbitration proceedings is an indispensible requirement in order to preserve itslegitimacy. The doctrine of natural justice seeks not only to secure the justice but also to prevent miscarriage of justice and anydeparture from the principle of natural justice calls for setting aside the award.

Despite of the fact that Section 19 of the Arbitration and Conciliation Act, 1996 provides that the Arbitrator shall not be bound by the provisions of the Code of Civil Procedure, 1908 and the Indian Evidence Act, 1872 the Arbitrator has to observe the principle of natural justice. The basic tenet of the Code of Civil Procedure and the Indian Evidence Act are required to be considered/ followed by the Arbitrator.

The relevant portion of Section 19 0f the Act are reproduced as under:-

“19. Determination of rules of procedure

• The Arbitral Tribunal shall not bound by the Code of Civil Procedure, 1908 (5 of 1908) or the Indian Evidence Act, 1872 (1 of 1872).
• Subject to this Part, the parties are free to agree on the procedure to be followed by the arbitral Tribunal in conducting its proceeding.
• Failing any agreement referred to subsection
• The arbitral Tribunal may, subject to this Part, conduct the proceedings in the matter it considers appropriate.
• The power of the arbitral Tribunal under sub-section (3) includes the power to determine the admissibility, relevance, materiality and weight of any evidence.“

Ever since the judgment of the Hon’ble Supreme Court in the case of Bareilly Electricity Supply Co. Ltd Vs. The Workmen reported as AIR 1972 SC 330 it is well settled that the principles of natural justice must be observed even if the adjudicating body is not governed by the strict rules of evidence or procedure. The Supreme Court further held as under –

“14…. But the application of principle of natural justice does not imply that what is not evidence can be acted upon. On the other hand what it means is that no materials can be relied upon to establish a contested fact which are not spoken to by persons who are competent to speak about them and are subjected to cross-examination by the party against whom they are sought to be used. When a document is produced in the court or a Tribunal the questions that naturally arise is, is it genuine document, what are its contents and are the statements contained therein true. …”

In the case of Nazim H. Kazi, of Bombay Indian Inhabitant Vs. Kokan Mercantile Cooperative reported as 2013 (2) Bom CR 193 the Bombay High Court held as under :-

“37. In my view, the learned arbitrator is bound to follow the principles of natural justice and fair play. Though Section 19 of the Arbitration and Conciliation Act provides that Arbitral Tribunal shall not be bound by the Code of Civil Procedure, 1908 and /or Indian Evidence Act , 1872, the practice and principles of Code of Civil Procedure and evidence are required to be considered by the

Arbitrator for taking any decision. Learned arbitrator cannot consider disputed documents in evidence without being proved. Perusal of the record indicates that both parties had not agreed before the Arbitral Tribunal that no oral evidence would be led by both the parties and the proceedings shall be conducted on the basis of the documents and other material. On the contrary, the record indicates that the petitioner filed affidavit in lieu of examination in chief and had offered himself for cross examination in support of his deposition on various disputed facts. The petitioner had also asked permission to cross examine the respondent’s witness but was rejectedby the arbitrator for patently illegal and irrelevant reasons. The learned arbitrator therefore could not have conducted the matter only on the basis of documents and other material when the petitioner had asked for opportunity to lead oral evidence and had made available himself for cross examination.“

It is settled law that Section 19 of the Arbitration and Conciliation Act, 1996 cannot be read to mean that Arbitrator is incapacitated indrawing sustenance from any provision of the Code of Civil Procedure. In the case of Nahar Industrial Enterprises Ltd Vs. Hong Kong & Shnaghai Banking Corporation reported as (2009) 8 SCC 646 the Hon,ble Supreme Court held as under :- “98…..

(n) It is not bound by the procedure laid under the Code. It may however be noticed in this regard that just because the Tribunal is not bound by the Code, it does not mean that it would not have jurisdiction to exercise powers of a court as contained in the code.’’ Rather, the Tribunal can travel beyond the Code of Civil Procedure and the only fetter that is put on its power is to observe the principle of natural justice“ ( see Indutrial Credit and Investment Corp. Of India Vs. Grapco Industries Ltd)”

The Arbitrator is bound to follow the fundamental principles of natural justice and must not disregard the rules of evidence which are based on such principles. Section 91 and 92 of the Evidence Act shall also apply to the arbitration proceedings as both the sections are based on theprinciple ‘best evidence’. Section 19 (4) of the Arbitration and Conciliation Act, 1996 also imposes duty on the arbitrator to determine the admissibility of the evidence adduced by the parties. In the case of Hindustan Shipyard Ltd Vs. Essar Oil Ltd repoeted as 2005 (1) ALD 421 the Hon’ble Allhabad High Court has held that where the parties have not agreed to any specific procedure, the arbitrator has to follow the statutory procedure, which means it has to weigh the entire evidence on record properly.

Thus eventhough the strict provisions of the Code of Civil Procedure and Evidence Act are not applicable, the Arbitrator is bound to consider the principles of Code of Civil Procedure and the Evidence Act and has to follow the principles of natural justice. The substantive law is required to be applied fairly and impartially. Lord Hewart CJ, rightly said it is important that justice should not only be done but should manifestly and undoubtedly been seen to be done.