A Division Bench of the Delhi High Court recently allowed the restoration of an arbitral award, asserting that the Single Judge, acting under Section 34 of the Arbitration and Conciliation Act (A&C Act), exceeded the permissible scope by reinterpreting the contractual terms between the parties and substituting the findings of the arbitrator, despite the arbitrator's conclusions being plausible and well-reasoned.
Brief Facts of the Case:
The present case involves a dispute between the appellant, Raghunath Builders Pvt. Ltd., and the respondent, Anant Raj Ltd., arising from a Development Agreement dated 12.06.2007. According to the agreement, Raghunath Builders Pvt. Ltd., the landowner, engaged Anant Raj Ltd. to develop the land into flats or units, contingent on the eviction of tenants occupying part of the property. The agreement specified that the costs associated with tenant eviction and other necessary clearances would be borne by Anant Raj Ltd., forming part of the overall project cost.
Disagreements arose regarding the termination of the agreement, with Raghunath Builders Pvt. Ltd. revoking Power of Attorneys and terminating the agreement, alleging Anant Raj Ltd.'s failure to obtain required sanctions within the stipulated 60-month period. An arbitration proceeding followed, resulting in an award in favour of Raghunath Builders Pvt. Ltd.
The dispute reached the Delhi High Court, where the learned Single Judge set aside the arbitral award, interpreting clauses of the agreement differently. Raghunath Builders Pvt. Ltd. appealed, asserting that the Single Judge overstepped the narrow scope of Section 34 of the Arbitration and Conciliation Act, 1996, by re-evaluating the merits of the case. The appellant argued that the arbitration award should be reinstated as it was well-reasoned and within the arbitrator's jurisdiction.
Contentions of the Parties:
Anant Raj Ltd. argued that the termination was unjust, emphasizing the allegedly irrevocable nature of the Power of Attorneys and asserting that the agreement was wrongly terminated due to delays in tenant eviction. On the other hand, Raghunath Builders Pvt. Ltd. contended that the termination was valid, pointing to Anant Raj Ltd.'s failure to fulfil obligations within the agreed timeframe.
Observations by the Court:
The court referenced the case of Ssangyong Engineering and Construction Co. Ltd. v. NHAI, emphasizing that, post the Amendment Act of 2015, the primary authority for construing the terms of a contract lies with the arbitrator. The court highlighted that this authority remains unless the arbitrator's interpretation is so unreasonable that no fair-minded or reasonable person would adopt it. Further, in the case of Sail vs. Gupta Brother Steels Tubes Ltd, the Supreme Court noted that the court, while considering a challenge to an arbitral award, does not sit in appeal over the findings and decision of the arbitrator. The arbitrator's legitimate interpretation should be accepted as final and binding.
Applying the principles laid down in Associate Builders v. DDA regarding the limited scope of interference under Section 34 on the ground of 'public policy,' the court found that the arbitrator had provided a plausible interpretation of the contract terms that did not violate public policy or shock the conscience of the court.
The Bench, consisting of Justices Suresh Kumar Kait and Neena Bansal Krishna, further explained that if an arbitrator exceeds the bounds of the contract and deals with matters outside their jurisdiction, it amounts to a jurisdictional error, falling within the new ground of 'patent illegality' introduced under Section 34(2A). In this regard, it referred to the case of Hindustan Zinc Limited v. Friends Coal Carbonisation and noted that 'patent illegality' applies when there is a contravention of the substantive law of India, the Arbitration Act, or the rules applicable to the substance of the dispute.
The second issue concerned the interpretation of contract clauses. The Division Bench concurred with the arbitrator's view that counting the termination period from the date when the entire tenanted area was vacated would afford the respondent an indefinite time for obtaining necessary sanctions, an interpretation inconsistent with the nature of a development contract. Further, the court referred to the case of Rashtriya Ispat Nigam Ltd. vs. Dewan Chand Ram Saran where it was held that if a clause in a contract is capable of two interpretations, and the arbitrator takes one plausible view, it cannot be considered perverse, and the court should not substitute its view.
The decision of the Court:
The order of the single-judge bench was set aside.
Case Name: Raghunath Builders Pvt. Ltd. v. Anant Raj Limited, FAO
Coram: Justices Suresh Kumar Kait and Neena Bansal Krishna
Case No.: FAO (OS) (COMM) 220/2017
Advocates of the Appellant: Mr. Sanjiv Sen, Sr. Advocate with Mr. Ujjal Banerjee, Mr. Akash Khurana, Ms. Anjali Singh & Ms. Radha Gupta, Advocates.
Advocates of the Respondent: Mr. Ritin Rai, Sr. Advocate with Mr. Soham Ksumar, Ms. Prathana Singhania & Mr. Abel Thomas, Advocates.
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