Hon’ble Mr. Justice Chandra Dhari Singh has opined that the scope of interference with an arbitral award under Section 34 of the Arbitration and Conciliation Act, 1996 is significantly limited and narrow. The Delhi High Court opined that while adjudicating a challenge to an award, the Court should not function as an appellate body.
Brief Facts:
A Petition was filed before the High Court under Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as "the Act, 1996") challenging the impugned award of the Arbitration Tribunal.
Brief Background:
BSNL was a unified access service provider, granted a licence under Section 4 of the Indian Telegraph Act 1885, and issued an Expression of Interest (hereinafter referred to as “EOI”), inviting bids for enabling projects. In response to the EOI, Smart Division Private Limited (hereinafter referred to as “SDPL”) submitted its proposal and subsequently signed Franchise Agreements (hereinafter referred to as “FA”). Under the FA, SDPL provided various services on a non-exclusive and revenue-sharing basis to subscribers in 53 cities across India. The project commenced with a trial run in Gurugram before expanding to other cities. SDPL submitted 53 performance bank guarantees, one for each allocated city, as required by Clause 4.7 of the FA. Acting as the content aggregator, SDPL utilised BSNL's infrastructure for service delivery. However, pricing guidelines for inter-city bandwidth were not specified. BSNL exercised its right of first refusal and provided intercity bandwidth to SDPL.
A dispute arose regarding the billing period for intercity bandwidth usage, with SDPL referring to BSNL's earlier indication that it would commence from the date of service launch in each city. Consequently, BSNL accepted SDPL's request to deactivate Multiprotocol Label Switching (hereinafter referred to as “MPLS”) port links for 46 cities, resulting in the cessation of SDPL's operations as a franchisee. Despite repeated demands, SDPL failed to make any payment for bandwidth charges, leading BSNL to invoke the Performance Bank Guarantee (hereinafter referred to as “PBG”) submitted by SDPL. In a letter, SDPL acknowledged ongoing discussions concerning the computation of bandwidth charges. BSNL approved the billing of intercity bandwidth charges to SDPL from the date of service launch and issued a revised final Demand Note, covering 39 cities. Subsequently, SDPL initiated arbitration by sending a notice. The learned Arbitral Tribunal issued the impugned award, prompting BSNL to file the petition.
Contentions of the Petitioners:
It was argued that the learned Arbitrator must adhere to the terms of the FA when determining the rights and obligations of the parties. The Arbitrator cannot unilaterally modify the terms of the FA to decide whether a party acted in accordance with the agreement. Additionally, it was claimed that the Arbitral Tribunal overstepped its authority by ruling that the respondent's intercity bandwidth charges were unreasonable and not proportionate to the revenue generated. The telecommunications tariffs are considered matters of expertise regulated by the TRAI. It was contended that the respondent should have challenged the tariff before TRAI instead of raising the dispute in arbitration.
Contentions of the Respondents:
It was argued that the petitioner's grounds were based on facts and required a re-evaluation of the evidence. It was pointed out that the petitioner has not made any claims under Section 34(2)(a) of the Act, 1996, and the petition's viability relies solely on allegations of patent illegality or violation of public policy, which are treated as secondary considerations and also require a reevaluation of the evidence.
It was emphasised that courts have limited jurisdiction when it comes to setting aside arbitral awards under Section 34 of the Act, 1996. The court does not review or reassess the evidence like an appellate body.
Observations of the Court:
It was observed that the law regarding challenges to arbitral awards under the Act, 1996 is well-established. The grounds for challenging an award under Section 34 must meet the criteria set by the Act, including a violation of the fundamental policy of Indian law, the interest of justice, conflict with justice or morality, and patent illegality in the award. The fundamental policy of Indian law encompasses compliance with statutes, and judicial precedents, adopting a judicial approach, and adhering to the principles of natural justice and reasonableness.
It was held that the intention behind the enactment of the Act, 1996 was to ensure the expeditious and effective resolution of disputes, limiting court interference in arbitration proceedings. Arbitration has emerged as a preferred platform for the quick resolution of disputes, especially in industrial and corporate settings. The Court’s scope of intervention in challenges under Section 34 is limited. The Court does not review the merits of the award but may only interfere if it is against the public policy of India. This principle has been reiterated by the Supreme Court in various cases.
In analysing the impugned award, the High Court analysed that it was crucial to apply the test of patent illegality or perversity to the grounds raised. The Arbitral Tribunal's jurisdiction and mandate were also examined, and it was observed that the tribunal has acted within its powers. The interpretation of the contract terms fell within the jurisdiction of the Arbitral Tribunal, even if its interpretation was incorrect. The court's interference is limited to cases of patent illegality or perversity. The Arbitral Tribunal's analysis of the contract provisions and evidence was based on its discretion as the sole judge of the evidence.
The Bench held that the petitioner failed to substantiate that the Arbitral Tribunal erred in adjudicating the dispute. The scope of interference under Section 34 is narrow, and the Petitioner did not show any grounds for setting aside the award.
The decision of the Court:
The Delhi High Court, therefore, dismissed the petition and upheld the arbitration award.
Case Title: Bharat Sanchar Nigam Limited v Smart Division Private Limited
Case No.: Commercial Arbitration under Section 34 No. 10 of 2021
Coram: Hon’ble Mr. Justice Chandra Dhari Singh
Advocates for Petitioner: Adv. Mr. A.K. Singh
Advocates for Respondents: Advs. Mr. Prateek Kumar, Ms. Sneha Jankiraman, Ms. Saloni Gupta
Read Judgement @LatestLaws.com:
Picture Source :