The Delhi High Court expounded that interference with an arbitral award under section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the “Act”) should only take place in cases demonstrating perversity or errors of law, rather than being based on the subjective notion of justice held by the court.
The High Court outlined the importance of maintaining the autonomy of the arbitral process and respecting the arbitrator's role as the final decision-maker.
Brief Facts:
M/s Medeor Hospitals Ltd., formerly known as M/s Rockland Hospitals Ltd. (hereinafter referred to as “RHL”), operated three hospitals in Delhi with plans for another facility in Greater Noida. RHL sought financial restructuring to alleviate its debt burden and engaged Ernst & Young LLP (hereinafter referred to as “EY”) to find strategic partners for two hospitals.
They signed a Letter of Engagement (hereinafter referred to as “LoE”) outlining EY's services. However, EY couldn't find partners, and RHL invoked Strategic Debt Restructuring (hereinafter referred to as “SDR”) due to financial difficulties. This resulted in EY's services being suspended. Later, RHL shareholders entered into a Share-Purchase Agreement with M/s VPS Healthcare Pvt. Ltd. (hereinafter referred to as “VPS”), but RHL retained ownership of the hospitals. After the LoE expired, EY demanded payment, but RHL refused, as the agreement's provisions weren't met.
Afterwards, EY lodged a claim with the Indian Council of Arbitration (hereinafter referred to as “ICA”).
Afterwards, the two co-arbitrators made an award stating that RHL should have informed EY about the sale of shares as per the requirements of the LoE. It was concluded that EY was entitled to its success fee.
Hence, the present petition under Section 34 of the Arbitration and Conciliation Act, 1996 was filed challenging the arbitration award.
Contentions of the Applicants:
It was argued that the Tribunal's award was invalid, illegal, and unjust. It was stated that the award lacked majority consensus and failed to consider the evidence on record. Further, the award was biased and disregarded RHL’s arguments and submissions.
Observations of the Court:
It was ruled that as long as the majority of the Arbitral Tribunal's members signed the award, it could be considered an award under Section 29 of the Act. The Presiding Arbitrator's failure to sign the majority award without providing a reason did not render it invalid. The High Court referred to a previous judgment to establish that interference in an arbitral award under Section 34 should only occur in cases of perversity or errors of law, not based on the Court’s subjective view of justice.
The Bench emphasized that the arbitrator's interpretation of contract provisions should not be set aside unless it is manifestly perverse. It was also stated that it cannot re-evaluate the facts or evidence presented before the arbitrator. Therefore, the Court rejected the petitioner's plea to set aside the award.
Furthermore, the High Court highlighted that the evidence supported the respondent's claims that they approached VPS and that the transactions with VPS were an evolution of the transactions envisioned in the agreement. It was concluded that EY was entitled to a success fee based on the consideration received by the shareholders, as advised by EY under the engagement.
The decision of the Court:
The Delhi High Court upheld the arbitration award and dismissed the petition filed under section 34 of the Act.
Case Title: Medeor Hospital Limited Formerly Rockland
Hospitals Limited v Ernst and Young LLP
Case No.: Commercial Arbitration u/s 34 (O.M.P. (COMM)) 116 of 2022
Coram: Hon'ble Mr. Justice V. Kameswar Rao
Advocates for Petitioner: Advs. Mr. Rajshekhar Rao and Ms. Aanchal Basur
Advocates for Respondent: Advs. Mr. Jayant Mehta, Mr. Prateek Khanna, Ms. Ravneet Kaur Malik and Ms. Kaveri Rawal
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