In O.M.P. (COMM) 419 OF 2020- DEL HC- It’s high time that while addressing a challenge to an Arbitral Award, Constitutional Courts should keep in mind the ‘Lakshman Rekha’ imposed on their powers  under Section 34 of Arbitration Act: Delhi High Court 
Justice Chandra Dhari Singh [12-06-2023]

Read Order : M/s. A.g. Enviro Infra Projects Pvt. Ltd v.  M/s. J.s. Enviro Services Pvt. Ltd

Simran Singh

New Delhi, June 13, 2023: The Delhi High Court, while dealing with a challenge to an Arbitral Award, opined that the petitioner had neither been able to point out any error apparent on the face of the record, nor otherwise was able to make out a case for interference with the Award with respect to the issue of patent illegality and public policy. The High Court, thus, held that the impugned Award did not suffer from any infirmities enshrined in Section 34 of the Arbitration and Conciliation Act, 1996,  neither being patently illegal nor in conflict with public policy of India.

It was further held that only limited interference by the Courts was allowed in the process of arbitration, whether before, during or after the conclusion of the proceedings. The High Court was of the view that the conclusion of an Arbitrator on facts, even if erroneous in the opinion of the Court, could not be interfered with and the Award could not be challenged on merits.

The Single Judge Bench of Justice Chandra Dhari Singh stated that “…it is high time that constitutional (Courts) should keep in mind the ‘Lakshman Rekha’ imposed on the powers of the courts while addressing the challenge to the Arbitral Award under Section 34 of the Act. This check on the powers of the constitutional courts is in light of the legislative mandate of the Arbitration Act.”

It was further stated that “It is also a cardinal duty of the constitutional courts to adhere to this check on the powers of the court and always keep in mind that the Arbitral Award which has been passed by respecting the mandate of the disputing parties, should not be set aside unless and until it suffers from a grave error that shocks the entire conscience of the court.”

In the matter at hand, the petitioner impugned the Original Award and the Impugned Final Award passed by the Arbitral Tribunal whereby the application filed by the petitioner under Section 33(2) Arbitration Act was dismissed stating that no errors were found in the Award. The Petitioner further prayed for allowing the counterclaim raised by the petitioner as against the respondent for Rs.4,14,42,192/- towards excess amount charged contrary to the Escalation clause under the agreement with 18% interest thereupon.

Issue for consideration before this Court

1. Whether the Impugned Award in question dated 30-10-2019 suffered from patent illegality as well as in conflict with the public policy of India and thus suffered from infirmities enshrined in Section 34 of the Arbitration Act?
2. Whether the Arbitrator appreciated and evaluated the material placed on record and gave the reasons for awarding compensation?

Court Analysis

The Bench while dealing with the first issue stated that the objective of introducing the Arbitration Act was to expeditiously and effectively dispose of matters and it was deemed necessary by the legislature as well as the Supreme Court to limit interference by the courts in the process of arbitration, whether before, during or after the conclusion of the proceedings. It was observed that the conclusion of an Arbitrator on facts, even if erroneous in the opinion of the Court could not be interfered with. “Where the view of the arbitrator is a plausible view and cannot be ruled as one which is impossible to accept, the court should not substitute its own view in place of that of the arbitrator.”

The Bench stated that Section 34 of the Arbitration Act was not in the nature of an appellate provision, and it only provided for setting aside awards on limited grounds, being contained in sub-section (2) and (3) of the Arbitration Act. Further, a ‘recourse’ to a court against an arbitral award may be made only by an application for setting aside such award in accordance with sub-sections (2) and (3).

The Bench referred to the Supreme Court case of MMTC Ltd. v. Vedanta Ltd. which stated that  under Section 34 of the Arbitration Act, the Award could not be challenged on merits. The Court was of the view that “the legislative mandate behind the advent of the Arbitration Act, the Spirit & Scope of Section 34 of the Act and the categorical judicial pronouncements on the ambit of Section 34 of the Act, clearly elucidate that the constitutional courts do not possess the unbridled power to interfere unnecessarily with the award. The embargo imposed on constitutional courts under the Section 34 of the Act is in tune with the legislative intent of the Act.”

The Bench stated that there was limited ground for patent illegality enshrined in the tenets of Section 34 of the Arbitration Act and should be applicable only when the arbitrator construed to the terms of the contract which could not be construed in accordance with the eyes of the reasonable person. “The error should be so apparent that it should shock the conscience of the court.”

However, the Court stated that if the decision which was wholly arbitrary and whimsical would not be termed as fair, reasonable or objective determination of the questions involved in the case. It was also held that observance of audi alteram partem principle was also a part of the juristic principle which needed to be followed.

The Bench opined that the petitioner had neither been able to point out any error apparent on the face of the record, nor otherwise been able to make out a case for interference with the Award with respect to the issue of patent illegality and public policy. Thus, the Court came to the conclusion that the Award passed by the Arbitrator, passed the muster of patent illegality and public policy enshrined in Section 34 of the Arbitration Act. Moreover, the Impugned Award was not in conflict with the public policy of India and thus did not suffer from any infirmities enshrined under Section 34 of the Arbitration Act.

While navigating through the second issue for consideration, the Bench referred to the case of NTPC Ltd. v. M/s Deconar Services Pvt. Ltd. which had observed that appellant in order to succeed in their challenge against an arbitral award, must show that the award of the arbitrator suffered from perversity or an error of law or that the arbitrator had otherwise misconducted himself. “Merely showing that there was another reasonable interpretation or possible view on the basis of the material on the record was insufficient to allow for interference by the Court.”

The Bench reiterated that the Arbitral Tribunal was the master of evidence and the findings of fact which were arrived at by the arbitrators on the basis of the evidence on record were not to be scrutinised as if the Court was sitting in an appeal.

The Bench sated that the Arbitrator had duly appreciated the evidence placed on record and had passed the  order after considering the evidence placed by the petitioner regarding the validity of the agreement. Thus, the Award was not devoid of reasoning and thus muster the challenges imposed under Section 34 of the Arbitration Act. “Moreover, following the catena of judicial pronouncements, the spirit of the Arbitration Act was very clear that Arbitration was the alternate dispute resolution process, and the entire ballgame was between the parties and the Arbitrator.”

“The Arbitrator is the sole umpire of that game and the legislative mandate clearly propounds that the constitutional courts cannot unnecessarily interfere in the reasoning and decision of the Arbitrator. Additionally, the embargo is also imposed on the constitutional courts by the catena of judgments that it is outside the purview of the powers of the court to reappreciate and re-access the evidence produced before the Arbitral Tribunal. Once the Award is passed by the Arbitral Tribunal, it can only be challenged on the basis of the very limited grounds enshrined under Section 34 of the Act. Therefore, this Court comes to the conclusion that the learned Arbitrator while passing the Impugned Award dated 30th October, 2019 and the decision on the application filed by petitioner under Section 33(2) of the Act considered the material evidence placed on record and is not devoid of any reasoning.”