Half a Year in Review: Setting Aside Arbitral Awards under Section 34 of the Arbitration & Conciliation Act, 1996 (Delhi High Court)

An Analysis: Section 34, Arbitration and Conciliation Act, 1996

by Ragini Agarwal    5 July 2020

It is undisputed that court interference with arbitral awards should be in the least. At the same time arbitral tribunals are not immune to interference. Under Section 34 sub-section (2) and (2A) of the Arbitration and Conciliation Act, 1996 (“the Arbitration Act”), courts have limited power under the provided grounds to set aside awards. The decision of setting aside awards depends upon the facts and circumstances of each case. In this blog post, the author attempts to give an overview of the decisions of the Delhi High Court (“the Court”) in relation to setting aside arbitral awards in the past six months (Jan. – Jun. 2020).

For the sake of brevity, a deep analysis of the judgments has been eschewed and the focus has been on laying out the broad facts and ratio derived from the cases. In all these cases, the words ‘Appellant’ or ‘Petitioner’ denote the first party and the word ‘Respondent’ denotes the second party after the versus.

1. In Gian Gupta of M/S Gee Gee International v. MMTC Ltd. (OMP (ENF.) (COMM.) 182/2019, Jan. 6, 2020), the court held that a delay of almost 6 years in giving the award after the final hearing and absence of any meaningful clarificatory hearing in the interim made the award liable to be set aside.

2. In Badri Singh Vinimay Private Limited v. MMTC Ltd. (O.M.P. 225/2015, Jan. 6, 2020), the Court found that the communication claiming disputed amount and contemplating arbitration in the alternative would constitute sufficient notice under Section 21 of the Arbitration Act and the invocation of arbitration could not be assailed on those grounds. Further, with regard to the merits, the Court found that the arbitrator had decided the matter on the basis of the evidence led before him. Re-appreciating evidence was not contemplated within the scope of the Court’s powers under Section 34.

3. In G + H Schallschutz Gmbh v. M/S. Bharat Heavy Electricals Ltd. (O.M.P. (COMM) 158/2019, Jan. 7, 2020), the Court rejected the contention that the partial final award and the final award were inconsistent with each other, holding that the two awards, though arising out of the same cause of action dealt with different aspects altogether. The award of damages and storage costs were premised on findings of fact which could not be examined under Section 34 of the Arbitration Act. The Court found that no grounds under public policy or patent illegality were made out.

4. In M/S First Global Stock Broking Pvt. Ltd. v. Tarun Gupta (FAO(OS) (COMM) 50/2019, Jan. 14, 2020), an appeal was preferred under Section 37 of the Arbitration Act to assail the order of the Single Judge in a Section 34 application. The Single Judge found that the tribunal in its order had taken a highly simplistic view of the contract. It had failed to consider that the Regulations of National Stock Exchange India Limited (F&O Segment) had not been followed and had made the award without making any reference to the correspondences exchanged between parties to find that the account of the respondent was a simple trading account. The account being a discretionary trading account, the basis for the award failed and the award was set aside. The Court in the current appeal found that the Single Judge had rightly evaluated the case and finding no reason to interfere with the order, rejected the appeal.

5. In Sukhbir Singh v. M/S Hindustan Petroleum Corporation Ltd. (O.M.P. 1118/2014, Jan. 16, 2020), the award was challenged on the grounds of violation of natural justice since the petitioner did not have the opportunity to cross-examine the respondent’s witness on the question of fabrication of documents. The Court found that unless the right to require oral evidence or oral arguments has been waived by a prior agreement to the contrary between the parties, the proviso to Section 24(1) of the Arbitration Act expressed a legislative preference for the grant of oral hearing at the request of either party. In the given case, however, the arbitrator had denied the petitioner’s reasonable request for oral evidence on the basis of the implicit faith he had in the officials of the respondent. The award falling short of fulfilling the minimum standard of natural justice was liable to be set aside.

6. In Municipal Corporation of Delhi v. Paramjeet Singh Narula (O.M.P. 138/2008, Jan. 27, 2020) a sole arbitral award given in 2007 was challenged as suffering from infirmity on account of being unsupported by reasons. The Court held that the petitioner was unable to substantiate its contention that the requisite drawings for widening and improvement of Link Road were given to the Respondents on time or that a qualified engineer was not appointed. Since the arbitrator had proceeded on a consideration of the evidence in granting some of the claims of the respondents and rejecting those of the petitioners, it was not open to the court to reconsider the evidence on record. The petition for setting aside arbitral award was rejected.

7. In Union of India through Ministry of Youth Affairs and Sports Department, CWG Delhi 2010 v. GL Litmus Events Pvt. Ltd. (O.M.P. (COMM) 30/2020, Jan. 29, 2020), the challenge was limited to the award of interest to the respondent. This interest had been granted when after a previous challenge under Section 34, the Court had remanded the matter back to the tribunal on specific claims on which the tribunal had failed to grant a ruling. Finding that the respondent was illegally deprived of the amounts payable to it on re-appreciation of evidence, the Tribunal was justified in awarding interest for the period for which the amount was withheld from the respondent. Accordingly, no interference with the award was warranted.

8. In Ircon International v. CR Sons Builders and Developers (O.M.P. 353/2009, Feb. 11, 2020), the arbitral award was impugned on grounds of not being rationally consistent with respect to one claim and for being perverse with respect to another claim. The Court found that the view of the expert arbitrator ought not to be interfered with, especially when the rationalisation was unimpeachable. The award must be read holistically. The next contention was on the grounds of perversity in awarding payment of escalation charges. The Court held that the arbitrator had rightly adjudged that there was coercion and undue influence in entering the Supplementary agreement in which the payment of escalation charges was prohibited. The award of escalation charges was within the arbitrator’s domain and could not be interfered with.

9. In Parmeet Singh Chatwal v. Ashwani Sahani (O.M.P. 1445/2014 & I.A.No.22669/2014, Feb. 14, 2020) the appellant disputed the existence of an arbitration agreement. The respondent claimed that the invoice raised for purchase of fabrics contained an arbitration clause for settling of disputes by Delhi Hindustani Mercantile Association. The Court found that there was no consensus ad idem with respect to the arbitration clause or the composition of the tribunal and the findings of the arbitrators were erroneous and contrary to the settled legal position. Signatures affixed on an invoice would only be considered as acknowledgment of the receipt of goods and, nothing more. Further, the Court found that the award itself was also illegal and contrary to public policy since the claim of the respondent was barred by limitation. Hence, the Court set aside the award.

10. In Union of India v. Prominent Builders (FAO 86/2020 & CM APPLS. 6614-6617/2020, Feb. 18, 2020), the Court found that the extent of judicial scrutiny in an appeal for setting aside an award under Section 34 and 37 are extremely narrow. The Court was inclined to agree with the trial court in holding that no ground for infirmity of the award had been made out under Section 34.

11. In New Delhi Municipal Council v. Ames Impex Electricals Private Limited (O.M.P. (COMM) 5/2019, Feb. 18, 2020), the Court found that the award suffered from patent illegality since there was inherent contradiction in the award. The tribunal noted at one place while referring to the inspection reports that the transformers were defective while arriving at a contrary conclusion in the next paragraph that the transformers were neither defective nor had any manufacturing defects. The latter being supported by evidence, supported the finding that both the parties were at fault for the failure of the transformers. Declining to grant complete balance payment to the petitioner as well as return of bank guarantees was not justified. Further, the award being non-reasoned and non-speaking was liable to be set aside to the extent it violated Section 31(3) of the Arbitration Act (dealing with form and contents of arbitral award).

12. In M/S Morgan Securities and Credits v. Videocon Industries (Through RP) (FAO(OS)(COMM) 9/2020 and CM APPL. 35917/2019, Feb. 26, 2020) [DB], the Court found that the arbitral tribunal had rightly allowed the interest at 21% for the initial period since the Appellant had itself agreed to the concessionary rate for an undetermined period till the contrary was asked. Only after issuing of demand notice could the contractual rate of interest @36% be charged. Post the award, interest @18% on the principle alone was justified since as per Section 31(7)(a) of the Arbitration Act, the arbitrator had the liberty to determine the rate of interest which could be on the principle sum alone or principle along with interest. In the instant case, the discretion of the arbitrator had been correctly applied.

13. In MMTC Ltd. v. Anglo-American Metallurgical (FAO(OS) 532/2015 & CM.APPL 20560/2015, Mar. 2, 2020), the Court found that though the grounds of challenge under a Section 37 appeal are narrow, where an infirmity that went to the root of the award, interference would be justified. In the instant case, the award was perverse since it was not based on any evidence. The findings of the arbitral tribunal were not supported by a plain, objective and clear-eyed reading of documents and hence, the award along with damages and interest was liable to be set aside.

14. In Mohan Steels v. SAIL (O.M.P. 488/2015, Mar. 4, 2020), the appellant contended that interpretation of the escalation clauses by the arbitrator was perverse. While interpretation is the domain of the arbitrator, he is a creature of the contract and cannot decide contrary to the terms of the contract or outside them. In the instant case, the arbitrator based his decision on the monthly circulars which were neither a part of the tender nor the contract, but were meant only for internal guidance of the respondent. Hence, the Court held that the award was liable to be set aside.

15. In BSNL v. Aksh Optifibre Limited (O.M.P. (COMM) 131/2017 & IA Nos.3379/2017 & 2642/2019, Mar. 4, 2020), the Court found no patent illegality or perversity on the view of the Tribunal on the bandwidth connectivity being given on a chargeable basis, since it was based on the interpretation of the contract. Parties were “ad idem” that the tribunal could fix rates since the rates were not provided for in the contract. However, there was perversity in the award with respect to escalation charges. Firstly, the Tribunal added the word “alone” to the interpretation of the contract, a word which was conspicuously absent. Secondly, the conversion charges are based on the principle that the labour charges and other charges increase over the year. Here, the parties could not have intended that the escalation charges be done on one year “alone” and not for the further years. The award was liable to be set aside partially, to that extent.

16. In SAIL v. Primetals Technologies Limited (O.M.P. (COMM) 349/2020 & I.As 1862-64/2020, Mar. 12, 2020), the Court dismissed the contention that the interpretation of the terms of the contract was wrong stating that such interpretation is within the domain of the arbitrator. The award of interest @14% however, was unmerited, excessive and penal. The arbitrator had failed to give any reasoning for such grant of interest while also failing to take any established factors for granting interest such as loss of use of principal sum, type of sum, time period for which the interest is to be levied, internationally prevalent rates, commercially justification and proportionality. The Court held that such a grant of interest was against public policy. Moreover, the full costs were awarded without reason and hence were brought down to 50% by the Court.

17. In V4 Infrastructure Private Limited v. Jindal Biochem Private Limited (FAO(OS) (COMM) 107/2018 & CMs. 20269/2018 & 49639/2019, May 5, 2020) [DB], the issue arose with respect to the payment damages and interest @18%. The Court intervened because there was a glaring difference between the claims sought by the respondent and the relief of the Tribunal. Holding that the award must be true to compensatory relief principles of Section 73 of the Contract Act, 1872, the Court modified the award.

18. In SMS Ltd. v. Konkan Railway Corporation Ltd. (O.M.P. (COMM) 279/2017, May 11, 2020), the Court held that the quantum of compensation to be paid to the Petitioner was perverse, incorrect and grossly incorrect. The rationale for the same was based on the following factors: i) that the award had been made on the principle of ‘notional idling cost’ to determine grant of claim for machinery, manpower and overhead; ii) the time limit over which the award was based was flawed and arbitrary; and iii) both the parties having contributed to the delays, loss on account of under-utilization of machinery should have been shared by both the parties. Hence, the award was set aside on grounds of perversity.

19. In Score Information Technology Ltd. v. Central Organisation (O.M.P. (COMM) 457/2018, May 12, 2020), the Court declined from interfering with the award since the Tribunal had considered all the evidence that had been produced before it. The Appellant had failed to produce evidence for loss, sales tax challan and other documentary evidence on record which would support its claim. Moreover, since the claims dealt with interpretation of the contract, that fell squarely within the domain of the arbitrator. Hence, no interference was warranted.

20. In National Highways Authority Of India v. M/S Ijm-Gayatri Joint Venture (O.M.P. (COMM) 428/2017, May 12, 2020), the Court found that no patent illegality could be found with the conclusion reached by the Tribunal once it has thoroughly analyzed the relevance circulars, Government Notifications and the Clauses of the Contract. On the question of refund of extra seniorage charges, loss on expenditure of keeping bank guarantees alive, method of quantifying claims, loss of productivity of unutilised plant and machinery and interest, it said no interference is warranted. Award on the claim of loss of profit was set aside since mere calculation without evidence was held to be insufficient to award claim. Further, the award with respect to pendent lite interest, where interest was to be compounded monthly was found to be punitive, and to that extent, liable to be set aside.

21. In Guru Gobnd Singh Indraprastha v. Engineers India Ltd. (O.M.P. (COMM) 413/2018, May 13, 2020), the petitioners had contended that the grant of interest to the respondent’s claim @12% and disallowing any interest on the petitioner’s counter claim before the arbitral tribunal on the grounds that they were in the nature of damages was patently illegal. Further, it was averred by the petitioner that the rate of interest was inordinately high. The court found merit in the contention that the same yardstick should be allowed for both and that interest could not be denied merely because one had the character of damages. The findings in the rest of the award could not be faulted and considering the limited grounds of challenge under Section 34, no interference was warranted.

22. In Turner Morrison Ltd. v. Rani Parvati Devi (O.M.P. (COMM) 50/2018 and I.A. 1568/2018, May 14, 2020), the Court found that the award of interest based on Usurious Loans Act, 1918 was unjustified and held that contractual rate of interest should have been given. The period for which the rate of interest was given as well as the liability to pay service charges as determined by the arbitrator was upheld since the view was a possible, plausible one and did not warrant interference.

23. In Union of India v. M/S Satish Builders (O.M.P.(COMM) 156/2017, May 14, 2020), the Court found that unequal treatment of claims and counter claims is no ground for interference. The arbitrator had considered each claim on its merits and appreciating the evidence before it, made its decision. On the specific impugned claims, the Bench undertook an analysis of the evidence that the arbitrator took into account and concluded that the arbitrator’s discussion on the claim being entirely factual and the findings turning on an appreciation of the evidence, it could not be said that any interference under Section 34 was called for on grounds of perversity.

24. In Salar Jung Museum & Anr v. Design Team Consultants Pvt. Ltd. (O.M.P.(COMM) 44/2017, May 21, 2020), the Court held that jurisdictional objection could not be entertained for the first time under Section 34 if it had not been raised before, especially in cases when the jurisdiction of the arbitrator is not circumscribed by a specific statute. On the question of perversity in interpretation of contract, the court held that the arbitrator had considered the evidence before him and given an award based on his interpretation of the contract, hence no ground for interference was made out.

25. In Pondicherry University v. B.E. Billimoria & Co. Ltd. (O.M.P. (COMM) 186/2019, I.A. 8723/2019, May 26, 2020), the Court found that the arbitrator had identified fifteen issues on the basis of the claims and counter claims averred before it and had given a reasoned order with respect to each of the claims. The court did not find any perversity with the award except with respect to one claim in which deduction of amount by petitioner was held to be wrongful and liable to be returned to the respondent. The Court found that the award was contrary to the invoices and documents on record and was liable to be set aside to that extent.

26. In Shon Randhawa v. Ramesh Vangal (O.M.P. 1255/2014, May 27, 2020), the Court found that directing specific performance of the contract was a discretionary and an equitable remedy which should not be exercised arbitrarily. In each case, the facts of the case, conduct of parties, interest under the act et al must be considered. The Court cannot rewrite the deed/agreement or substitute its own understanding for the parties. The Court held that the Tribunal in declining specific performance of the Share Purchase Agreement had exercised its discretionary power correctly. No ground for patent illegality was made out.

27. In Gammon India Ltd. & Ors. v. National Highways Authority Of India (O.M.P. (COMM)392/2020) & I.A. 11671/2018, June 23, 2020), there were multiple arbitrations and multiple awards with respect to different claims arising from the same contract. The issue raised before the Court was whether it was permissible to read the findings of a subsequent award to decide objections against a previous award. The Court stated that each award must stand independently. Conflating the awards would lead to unpredictable consequences and considering that the assailed award was well reasoned and in terms of the contract, it was not liable to be challenged and set aside. The Court also highlighted the issues that arose out of multiplicity of arbitral proceedings and issued directions to the effect that in Section 34 petitions, parties approaching the Court ought to disclose whether the existence, stage and forum of any other proceedings pending or adjudicated in respect of the same contract or series of contracts. Parties approaching courts were directed to disclose pending petitions and endeavour to seek disposal of petitions together, to refer matters to the same tribunal to avoid conflicting and irreconcilable findings.

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