Bombay High Court
M/S. Leaf Bio-Tech Pvt. Ltd. vs Thane Municipal Corporation on 3 November, 2025
2025:BHC-AS:46533
ARA.46.2015.doc
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
CIVIL APPELLATE JURISDICTION
ARBITRATION APPEAL NO.46 OF 2015
M/s Leaf Bio-Tech Pvt. Ltd. ....Appellant
Versus
Thane Municipal Corporation & Ors. ....Respondents
Mr. Arif Bookwala, Senior Advocate a/w. Mr. Chirag Chanani,
Mr. Chaitanya Bhandarkar, Mr. Sachet Makhija & Ms Mihika
Joshi i/b Dhruv Pathak, Advocates for the Appellant.
Mr. R.S. Apte, Senior Advocate i/b Mandar Limaye, Advocate
for Respondent No.1.
Mr. Prakash Panjabi i/b. Prakash Panjabi, Advocate for
Respondent No.2.
CORAM : SOMASEKHAR SUNDARESAN, J.
Reserved on : APRIL 4, 2025
Pronounced on : NOVEMBER 3, 2025
JUDGEMENT :
Context and Factual Background:
1. This is an appeal filed under Section 37 of the Arbitration and
Conciliation Act, 1996 ("the Act") against a judgment dated June 26,
2015 passed by the Principal District Judge, Thane (" Impugned
Judgment") which has set aside an arbitral award dated August 8, 2005
("Arbitral Award").
Digitally
signed by
AARTI
AARTI GAJANAN
PALKAR Date:
2025.11.03 NOVEMBER 3, 2025
15:43:42
+0530 Aarti Palkar
ARA.46.2015.doc
2. The Arbitral Award had ruled in favour of the Appellant, Leaf
Bio-Tech Pvt. Ltd. ("Leaf Biotech") and against the Respondent No.1,
Thane Municipal Corporation ("TMC"). The Impugned Judgment has
set aside the Arbitral Award on the premise that it is perverse and in
conflict with public policy of India on the ground that the interest rate
is too high; that TMC's counter-claim has not been adjudicated; and
that the Learned Arbitral Tribunal sought a certain clarification from a
chartered accountant behind the back of both parties.
3. The disputes and differences between the parties relate to a
Memorandum of Understanding dated December 20, 1995
("Agreement") by which TMC agreed to provide solid waste generated
in Thane to Leaf Biotech for waste treatment and processing to enable
Leaf Biotech to manufacture bio-organic manure and a lease deed
dated March 29, 1996 ("Lease Deed") by which an area of 36,501
square metres was leased to Leaf Biotech for a period of 29 years, to set
up a waste management and treatment plant to manufacture such
manure.
4. It is common ground that Leaf Biotech invested in setting up the
plant, took loans, from SICOM Ltd. (" SICOM"), Jankalyan Sahakari
Bank Ltd. and other lenders, and commissioned the plant by May 1998.
The project had policy and financing support from the Central
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Government. TMC supplied garbage until May 1999 and then stopped
supply ostensibly on the ground that there was a public outcry about
foul odour from the plant; non-maintenance of hygiene by Leaf
Biotech; default in creating a green belt around the plant; and
obstruction by the public in delivery of garbage to Leaf Biotech's plant.
5. It is noteworthy that Writ Petition No. 6575 of 1995 had been
filed in this Court asking for relocation or repair of TMC's own Sewage
Treatment Plant in the region. Writ Petition No. 2472 of 1999, in the
form of Public Interest Litigation was also filed in this Court seeking
relocation of Leaf Biotech's plant on the premise of foul odour and
health hazards attributed to Leaf Biotech's plant.
6. The two Writ Petitions led to the formation of the 'Almitra
Committee' which closely examined the matter and returned firm
findings in a report dated March 28, 2000 (" Committee Report") about
the cause of the odour and hygiene conditions after also conducting a
study of daily handling of garbage by Leaf Biotech over a three-month
period. The Committee Report is said to have found that it was TMC
and its Sewage Treatment Plant that was responsible owing to
breakdown in its handling of sewage pipes that were being dumped into
open and stagnant sewage wells, which passed through broken
pipelines into salt pans and the sea. The Committee Report found no
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basis to implicate Leaf Biotech's compost plant as the source of odour
of health issues in the neighbourhood and indicated that there was no
cause to close that plant.
7. Both the Writ Petitions were disposed of by a Learned Division
Bench of this Court by an order dated July 27, 2000 (" PIL Judgment").
TMC accepted the findings of the Committee Report and also filed an
affidavit to confirm to this Court that it had undertaken repairs to its
Sewage Treatment Plant. TMC also committed to undertake remedial
measures to resolve the findings against it about its handling of sewage
and its Sewage Treatment Plant. This was the basis of the PIL
Judgment, disposing of the Writ Petitions on the premise that they had
served their purpose.
8. However, despite the PIL Judgment and the findings in the
Committee Report, TMC did not resume supply of garbage as
contracted in the Agreement. Arbitration was invoked and the TMC's
own Commissioner came to be appointed as the Sole Arbitrator as per
the Agreement between the parties. After a while, the TMC
Commissioner recused from the arbitration on the premise that he
could not play this role dispassionately. This led to a Section 11
Application being filed and a former Judge of this Court being
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appointed as the Learned Sole Arbitrator to adjudicate the disputes in
the matter.
Arbitral Award:
9. The Learned Arbitral Tribunal was presented with a claim by
Leaf Biotech for award of damages measured by loss of profits and
borrowing costs. TMC filed a counter-claim alleging breaches by Leaf
Biotech in complying with the terms on which the Agreement was
executed, and also defending its refusal to supply garbage by
attributing it to public outcry and obstruction of vehicles that were
meant to supply the solid waste to Leaf Biotech's facility. TMC claimed
that because of Leaf Biotech's breaches of the Agreement, TMC was
now forced to dump garbage at two other distant locations - Mumbra,
22 KM away and Balkum, 5 KM away. This was costing the TMC Rs. 9o
lakhs per annum, and it was contended that Leaf Biotech must
compensate the TMC.
10. The Learned Arbitral Tribunal framed two issues on each claim
to figure if Leaf Biotech proves that TMC had breached the Agreement,
and if so, whether compensation was due and in what amount.
Likewise, the Learned Arbitral Tribunal also framed an identical set of
two issues about the counter-claim i.e. whether TMC proves that Leaf
Biotech was in breach, and if so, whether compensation was due and in
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what amount. After examining facts, the Learned Arbitral Tribunal
again reduced it to a dual issue, namely, which party is responsible for
breach of contract; and what is the compensation to be paid to the
other party.
11. The Learned Arbitral Tribunal has conducted an extensive review
of the material on record, the evidence led by the parties and returned
its findings. Witnesses presented by Leaf Biotech included its own
executive, executives of Excel Industries Ltd., a company that had
committed to purchase the manure manufactured by Leaf Biotech at a
firm price for a year; and officials of lenders who had lent funds to Leaf
Biotech to enable assessment of the damages claimed. The TMC
presented an officer who had taken up his role ten months after the
cessation of supply of garbage by TMC, and multiple residents living in
the locality to prove the facts pleaded about the local situation on the
ground.
12. The Learned Arbitral Tribunal extensively examined the material
presented, including the Committee Report, the PIL Judgment, the
pleadings and proceedings in the Writ Petitions, the examination and
cross examination of the witnesses presented, data on the cost of
borrowing, the computation of loss of profits and discounted net
present value of future earnings. The Learned Arbitral Tribunal has
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evidently returned findings that Leaf Biotech was not to blame for any
breach and there was no reason for TMC not to resume supplying
garbage to Leaf Biotech after the PIL Judgment. The Learned Arbitral
Tribunal examined TMC's own affidavits in the Writ Petitions,
confirming that Leaf Biotech was not responsible. The Learned
Arbitral Tribunal found that with the PIL Judgment, the issues on facts
had attained finality and TMC ought to have resumed supply of garbage
to Leaf Biotech's plant as contracted.
13. The Learned Arbitral Tribunal awarded a sum of Rs. 12.67 crores
as compensation payable by TMC, being an aggregate sum of Rs. 8
crores towards loss of profit between May 1998 and March 2004; penal
interest due to the lenders at Rs. 4.40 crores and Rs. 23 lakhs as the net
present value of future net profits. Pendente lite interest was awarded
at 9% per annum from November 18, 2003. Post-award interest had
been awarded at 18% per annum upon the expiry of a month from the
date of the Arbitral Award.
Impugned Judgement:
14. The Impugned Judgement returns a strange outcome. The
Learned Judge evidently agonised over the parties not being able to
settle their disputes by agreeing to a lower post-award interest rate, and
chose to simply set aside the Arbitral Award as being perverse.
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15. It may be mentioned that a predecessor of the Learned Judge
had passed an order dated July 17, 2009, setting aside the Arbitral
Award on the sole ground that the matter needed to be remanded for
adjudicating the counter-claim afresh. Both TMC and Leaf Biotech had
challenged that outcome before this Court. By an order dated March 19,
2010, a Learned Single Judge of this Court remanded the Section 34
file back to the District Court for consideration afresh, leaving
contentions of both sides open.
16. On remand, on August 14, 2014, the Learned Judge nudged the
parties to settle their disputes by negotiating on an interest rate to
replace the post-award interest rate of 18% per annum. The parties
were directed to present themselves to the TMC Commissioner for this
purpose. Evidently, that failed and the matter was taken up again by
the Learned Judge.
17. The Section 34 Court noticed the scope of Section 34 of the Act at
the threshold and summarised the law in McDermott1. The Learned
Judge noticed the three grounds of challenge - interest rate being too
high; a clarification being sought from the chartered accountant
witness behind the back of the parties; and that the powers of TMC as a
corporation override the powers of its Commissioner. TMC had also
McDermott International Inc. vs. Burn Standard Co. Ltd. & Ors - (2006) 11 SCC
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contended that despite the Learned Arbitral Tribunal noticing the
counter-claim it had been neither granted nor refused.
18. Leaf Biotech pointed out that TMC had not even purported to
terminate the Agreement and the Lease Deed. Resolutions of the
Standing Committee that bind the TMC were alluded to. It was
contended that TMC was seeking to re-argue the matter in the Section
34 proceedings.
19. The Impugned Judgment simply holds that the Arbitral Award is
perverse and against public policy, in a summary conclusion in
Paragraph 23 of the Impugned Judgment. The three summary
findings are:-
a) Interest at the rate of 18% per annum "is definitely against
the public policy in India" because rate of interest is not 12%
per annum "even in housing loans etc.";
b) The Arbitral Award is "perverse because it has not dealt
with the counter claim" of the TMC;
c) The Learned Arbitral Tribunal has not followed the
mandatory provisions of Section 24(3) of the Act because the
Learned Arbitral Tribunal had sought a clarification, without
informing either side about having sought such clarification,
on discounting of future earnings from a Chartered
Accountant witness.
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20. The Arbitral Award having been set aside, this Appeal has been
filed.
Analysis and Findings:
21. I have heard Mr. Arif Bookwala, Learned Senior Advocate on
behalf of Leaf Biotech and Mr. R.S. Apte, Learned Senior Advocate on
behalf of TMC at length on their contentions. With the assistance of
their verbal submissions as well as written notes on arguments, I have
examined the material on record.
22. I find that the Learned Arbitral Tribunal has returned a clear,
articulate and detailed set of findings in the Arbitral Award. The
Learned Arbitral Tribunal has squarely dealt with all the issues posed
by both parties before the Learned Arbitral Tribunal, and has
considered who was in breach of the Agreement. The Learned Arbitral
has analysed in detail, the pleadings in the two Writ Petitions, the
findings of Committee Report, the acceptance of the Committee Report
by TMC, the commitment to implement it fully, and the eventual
disposal by the PIL Judgment.
Interest Rate not Against Public Policy:
23. I find that the Section 34 Court's summary rejection of interest at
18% is an arbitrary one and not informed by any empirical method or
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basis. Worse, the Impugned Judgment inexplicably alludes to interest
rate for home loans when seized of a matter involving interest rate
contracted for an industrial facility. There is no basis to contend that
nationalised banks do not charge interest at the rate of 18%. There is
not a whisper of comparison of this interest rate with the interest rate
contracted by Leaf Biotech with its lenders.
24. The Learned Judge could have taken judicial notice of interest
rate that was applicable to prime clients in 1999. He could have called
upon the parties to submit on oath the empirical basis for their
objection or support to the interest rate. It is a matter of public record
that the prime lending rate of interest of the State Bank of India in 1999
(the period in which the breach of the Agreement took place) was in the
region of 14%2. By the time the Impugned Judgment was passed, the
publicly published prime lending rate of the State Bank of India was
even higher at 14.45%. A "prime lending rate" is the interest rate given
to the most creditworthy borrower with minimal scope for default
owing to business failure or wilful default. Other borrowers are
charged a mark-up over the prime lending rate depending on their
credit rating. Lower the creditworthiness, higher the interest rate
applicable.
https://sbi.bank.in/web/interest-rates/interest-rates/benchmark-prime-lending-rate-
historical-data
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25. Tere is no material on record to have enabled the Learned Judge
to come to a conclusion that an interest rate of 18% is " definitely"
against public policy of India. Public sources of interest rate charged
to the most creditworthy borrowers in fact indicates that a borrower
such as Leaf Biotech, whose creditworthiness is dependent on a
counterparty such as TMC honouring its obligations, would be even
higher and that is not far from the rate awarded by the Learned Arbitral
Tribunal. All that the Section 34 Court could have done is examine
from the material on record if the exercise of discretion by the Learned
Arbitral Tribunal has been so disconnected to reality that it is perverse.
What the Section 34 Court must not do is bring to bear its own notions
of what is an appropriate interest rate, instead of testing the exercise of
discretion by the Learned Arbitral Tribunal.
26. The Act empowers the Learned Arbitral Tribunal to grant post-
award interest rate. The Learned Arbitral Tribunal is entitled to take a
view that a slightly higher interest rate would be a deterrent to non-
compliance with the Arbitral Award.
27. An examination of the record and the clearly plausible findings,
which are well supported by reasons, would show that the Learned
Arbitral Tribunal had squarely held that TMC was in breach and Leaf
Biotech was not in breach. Therefore, in the absence of any articulated
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reasons to interfere with the Arbitral Award, and on account of the
Section 34 Court having arbitrarily brought to bear its own notions of
pricing in the money market, the first ground on which the Arbitral
Award was interfered with cannot pass muster.
28. The Section 34 Court's scope of review is consciously limited by
Parliament to avoid precisely this type of substitution and replacement
of an arbitral tribunal's view with the Court's view.
Counter-Claim Squarely Rejected:
29. This brings me to the issue of whether the counter-claim has not
been dealt with. The Section 34 Court summarily agrees with TMC. I
am unable to agree with the Impugned Judgment on this count too.
30. The Learned Arbitral Tribunal has noticed that there was no
reason for TMC not to supply garbage to Leaf Biotech after the PIL
Judgment. To my mind, the contention that the counter-claim has not
been ruled on is untenable and a distraction from the core content of
the Arbitral Award. The unquantified counter-claim raised the
contention that it was Leaf Biotech that had not complied with the
Agreement. This was squarely answered by reference to the material
on record including the Committee Report, with a finding that Lear
Biotech had not breached the Agreement, and that it was the TMC that
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was in breach. As regards not creating a green belt around the plant,
the Learned Arbitral Tribunal directed a site visit in consultation with
both parties. The Learned Arbitral Tribunal has also returned firm
findings that the site was covered on three sides by the sea and on the
land-side Leaf Biotech had created a green belt.
31. The Learned Arbitral Tribunal also found that the Mulund dump
yard was also in proximity. It was found that TMC alone was
responsible (as found in the Committee Report) for the odour and lack
of hygiene near the plant owing to faults in TMC's Sewage Treatment
Plant. The Committee Report's clean chit to Leaf Biotech's compost
plant has been specifically alluded to and analysed. It is inexplicable
that TMC could keep contending that the counter-claim was not dealt
with. Once it is explicitly held that Leaf Biotech had not breached the
Agreement and that it was TMC that had breached the Agreement, it
can never be contended that the counter-claim had not been dealt with.
32. It is clear as daylight to me that TMC's counter-claim was
squarely rejected. The Section 34 Court is meant to examine the record
and see if a just outcome in an arbitral award could even be supported
by reasons that are not expressly set out but are necessarily implied.
The Impugned Judgment falls woefully short of this standard. It is
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impossible to hold that TMC's counter-claim was not considered or
ruled on.
33. The allusion to the land leased to Leaf Biotech having been at a
discounted rate is also of no avail. TMC, in its wisdom agreed that it
would supply garbage to Leaf Biotech. This would have benefited TMC
by finding a firm manner of waste disposal, contribute to production of
manure, and earn royalty on the sales made (the first year's sales had
an assured offtake from Excel Industries). Bearing all this in mind, it
was TMC's conscious commercial decision to supply the waste and
provide the land on lease to build the plant on. The violative non-
supply of waste brought everything to a grinding halt. The findings of
the Learned Arbitral Tribunal that TMC alone was responsible for
breaching the Agreement would necessarily mean that the loss of lease
rental and royalty suffered by TMC is attributable to TMC's own
default. On the other hand, there is nothing to suggest that Leaf
Biotech has benefitted from the use of the land. TMC did not even
quantify the counter-claim in this regard.
34. Therefore, I am not at all satisfied that the counter-claim is not
considered. TMC's contention that Leaf Biotech has benefited from
cheap land also does not change the analysis. The stoppage of supply of
garbage by TMC for reasons best known to TMC, despite Leaf Biotech's
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plant getting a clean chit, does not call for any compensation. The
Learned Arbitral Tribunal has even examined evidence to see if there
was any physical obstruction and blockage by local residents to the
vehicles and found that there was none. The witnesses brought to bear
by TMC also have been examined and their evidence did not point to
any physical obstruction to TMC.
35. Once the Learned Arbitral Tribunal held that there was no reason
for TMC to not resume supply of garbage to Leaf Biotech, it would
follow that the expenditure for transporting garbage to the two other
distant locations was of TMC's own doing. There was evidently no case
for considering such costs needlessly being incurred and visiting it
upon Leaf Biotech.
36. It was not necessary for the Learned Arbitral Tribunal to have
specially written a separate heading titled "counter-claim" and to have
specifically written a few more paragraphs to formally state that the
counter-claim stood rejected. The analysis contained in the Arbitral
Award leaves no manner of doubt that the Learned Arbitral Tribunal
ruled with reasons that the counter-claim stood rejected.
37. In Paragraph 179, the Learned Arbitral Tribunal has pointed out
that the issues involved required the Learned Arbitral Tribunal to
answer which party is responsible for the breach of contract and what is
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the compensation to be paid to which aggrieved party. In Paragraph
180 of the Arbitral Award this is explicitly answered by stating that it is
the TMC that committed the breach of contract and is liable to
compensate Leaf Biotech for loss of profit and damages.
38. Therefore, on this count too, the Learned Arbitral Tribunal's
findings could not have been lightly disturbed. The Impugned
Judgement's finding that the counterclaim has not been dealt with, is
untenable and without any articulated rationale.
Private Clarification from Witness:
39. This is a serious allegation. I have examined what the Learned
Arbitral Tribunal has actually done. The upshot of TMC's contention is
that the Learned Arbitral Tribunal has violated principles of natural
justice and has gone behind the back of a party to collect evidence. This
is a strong allegation and if right, would undermine the Arbitral Award.
Leaf Biotech confirms that the Learned Arbitral Tribunal sought a
clarification of its own accord directly from the witness and even Leaf
Biotech was not aware of this request, and that there was nothing
selective about leaving out TMC. Be that as it may, the witness from
whom the clarification was sought was the witness whose evidence was
led by Leaf Biotech, which evidence was fully available to both parties
when it was led.
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40. Section 24(3) of the Act, which is invoked by TMC reads thus:
(3) All statements, documents or other information supplied to, or
applications made to the arbitral tribunal by one party shall be
communicated to the other party, and any expert report or evidentiary
document on which the arbitral tribunal may rely in making its decision
shall be communicated to the parties.
[Emphasis Supplied]
41. Section 24(3) of the Act makes it incumbent on any party that
supplies statements, documents or other information to the Learned
Arbitral Tribunal, to also supply the same to the other party. The said
provision also requires the Learned Arbitral Tribunal to communicate
to the parties, any expert report that it may rely upon to make its
decision.
42. Therefore, it is vital to examine if there is anything in the
exchange that took place between the Learned Arbitral Tribunal and
the Chartered Accountant that constitutes an expert report or
evidentiary document that the Learned Arbitral Tribunal relied on,
without communicating it to the parties. It became necessary to put
this facet of the matter under a microscope and examine it very closely.
43. It is found that on June 16, 2005, the Learned Arbitral Tribunal
wrote to Mr. Dinesh Kelkar, the Chartered Accountant who had led
evidence on the net present value of future earnings to ask him what he
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meant by "discounting future earnings @ 33% ". The Learned Arbitral
Tribunal wrote this:
"While I appreciate that as Chartered Accountant you must have applied
some methodology, but as a non-accounting person, I am not satisfied
with the answer and would like you to clarify about the calculation @
33% made by you for discounting future profits.
Hence my following queries :
(1) Please explain the calculation of the net profit per year after adjusting
the cost of manure per MT and royalty payable to TMC without finance
charges ?
(2) The method of discounting @ 33% for obtaining the net present value
of the future earnings and the basis of any authentic document which is
used by Chartered Accountants ?
[Emphasis Supplied]
44. The letter from the Learned Arbitral Tribunal to the Chartered
Accountant is essentially a question from a judicial person who is not
proficient with financial literacy, seeking clarification about the method
adopted for discounting future profits; and how net profit without
finance charges is computed. Ideally, this could have been asked by
the Learned Arbitral Tribunal, keeping both sides copied on the
correspondence. One has to see if not doing so, in the specific fact
situation at hand, vitiates the Arbitral Award and makes it perverse to
the point of having to set it aside.
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45. When one sees the reply of the Chartered Accountant it becomes
clear that he provided no new evidence to the Learned Arbitral
Tribunal. I have carefully compared his reply with the original affidavit
filed by him in August 2004. He has set out the very same data that he
had already given in evidence, and set out the manner of computation
made by him.
46. The Chartered Accountant indicated that he had arrived at the
aggregate sum of the equity capital, the secured debt, unsecured debt
and the grant received from Government of India, adding up to Rs.
4.70 crores to treat this sum as the "capital employed". He has also
shown how he arrived at the returns capable of being earned by
adopting the sale value of Rs. 1,700 per metric tonne of organic manure
contracted with Excel Industries, reduced by the royalty of 2% payable
to TMC, further reduced by the operating cost per metric tonne of
organic manure, leading to the net profit per metric tonne of Rs.
797.85. The total manure to be produced if 300 metric tonnes of
garbage had been supplied by TMC as contracted, led to a quantum of
19,710 metric tonnes and this was multiplied by the net profit per
metric tonne to arrive at Rs. ~1.57 crores of annual profit. This amount
of Rs. 1.57 crores on the capital employed at Rs. 4.7 crores led to a 33%
rate of earning. There is nothing new in this data when compared with
the original affidavit filed by the Chartered Accountant.
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47. The Chartered Accountant explained that this 33% rate was
applied from the seventh year to the 29th year. He enclosed a sample of
a ready table published by Sukh Sagar Institute (CA training institute)
and academic literature published by the Institute of Chartered
Accountants of India, explaining what "net present value" means and
how like a ready reckoner, this is a standard table depicting the net
present value on the basis of length of time and percentage of
discounting.
48. Having carefully examined the reply of the Chartered Accountant
to the letter dated June 16, 2005 with the affidavit filed earlier by the
Chartered Accountant in August 2004, I have found that there is
nothing new or substantive in the reply from the Chartered Accountant.
The figures used are the same. His calculation of 54 metric tonnes per
day of manure manufacture based on supply of 300 metric tonnes of
garbage per day set out in his affidavit, precisely and exactly conforms
to his reply to the Learned Arbitral Tribunal, which on an annualised
basis, adds up to 19,710 metric tonnes of organic manure per annum.
49. The discounting of 33% is nothing but an explanation of how
future earnings are to be valued today. There is no new evidence in this
reply of the Chartered Accountant. The reply given by him would have
been obvious to any financial analyst that anyone could engage.
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Indeed, the Learned Arbitral Tribunal could have copied the query sent
to the witness, to both the parties for their information. The letter does
not appear to have been copied to them. However, I have given my
anxious consideration if there has been any miscarriage of justice, or
breach of natural justice principles, or any prejudice caused to any
party, since that would be a ground to set aside the Arbitral Award as
being opposed to the fundamental policy of the law of India. I have also
examined if the principle of justice or morality stand vitiated in the
process.
50. While the Learned Arbitral Tribunal indeed erred in not copying
both parties, going by the content and the context of the exchange
between them, the Learned Arbitral Tribunal has not blundered or
committed an act that would render the Arbitral Award perverse. I am
satisfied that owing to the information covered in both - the affidavit
and the later letter - is the same, no new evidence came to be collected
through this exercise. Therefore, I am satisfied that the facet of fairness
and natural justice compliance has not been undermined.
51. The approach ought to have been of copying both parties, but
that not having been done, upon the aforesaid examination, I am
convinced that no prejudice has been caused. Therefore, instead of
throwing out the baby with the bathwater, being satisfied that there is
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nothing new in the explanation given by the Chartered Accountant, I
am not satisfied that a case has been made out to take the extreme step
of setting aside the Arbitral Award. To do that, one would need to hold
that evidence has been collected behind the back of a party to the
proceedings. Such an approach would be disproportionate and
inappropriate.
52. Just as expert arbitrators in the fields of engineering and finance
are to be treated from a different prism on matters of law, in the
peculiar development in this case, the outreach by the Learned Arbitral
Tribunal not conversant with financial metrics, to get an explanation is
understandable and attributable to the absence of financial literacy and
discomfort with numbers that many lawyers and judges routinely
profess.
53. In listing this as one of the three grounds to set aside the Arbitral
Award, the Impugned Judgment contains no discussion of the issue
and the facts involved. It has simplistically, again summarily, indicated
that the Arbitral Award is perverse on this count. Therefore, I have
gone a step further to examine if there has been any remote damage to
the dispensation of justice or dent to the integrity of the process, and
upon a careful examination, I am satisfied that there has not been any
such subversion of justice.
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54. I have also noticed that the computations made by the Chartered
Accountant was also dependent on the computations provided by Excel
Industries Ltd to which too, there had been no addition or
modification. There was no scope to really provide anything new. In
any case, nothing new came about from this exchange. All this financial
information was an integral part of the record and the Learned Arbitral
Tribunal found that the TMC did not attack this analysis in its cross
examination in any material manner.
55. On a completely separate note (not that it would address the
Learned Arbitral Tribunal not writing to the parties and directly asking
a witness to clarify), it is also noteworthy that after this
correspondence, the Learned Arbitral Tribunal has reduced the amount
claimed and reduced the loss of profit figure from the claimed level of
over Rs. 9 crores to Rs. 8 crores and the future profits from over Rs. 86
lakhs to Rs. 23 lakhs. The Learned Arbitral Tribunal came to a view
that the computation indicate the numbers to be on the higher side.
56. The Learned Arbitral Tribunal also turned in this
correspondence as part of the record of proceedings to the Section 34
Court. There was nothing hidden and this was transparently shared. I
am satisfied that there has been no erosion of the integrity of the
decision-making process and therefore, in this peculiar situation, I am
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not inclined to set the parties back to square one on this count and wipe
out the work that has gone into the matter over the past two and half
decades.
57. I must hasten to add that the inconvenience of setting aside an
arbitral award is not at all a determinative factor of whether it should
be set aside. On the facts of the case, it would be unnecessary to set
aside the Arbitral Award for the reasons set out above, and doing so
would lead to an unfair travesty of wiping out all the work done in the
matter, when my finding is that the clarification sought did not lead to
any subversion of the process of evidence collection.
58. Therefore, I am of the view that this ground too is not adequate
to interfere with the Arbitral Award. The Section 34 Court ought not to
have lightly interfered with the Arbitral Award.
Scope of Review by the Section 37 Court:
59. Overall, on each of the aforesaid issues, the following extract
from Konkan Railway3, in which the Supreme Court has articulated the
approach that ought to be adopted by the Section 37 Court, is
noteworthy:
Analysis:
Konkan Railway Corporation Limited v. Chenab Bridge Project Undertaking - (2023) 9 SCC 85
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18. At the outset, we may state that the jurisdiction of the Court
under Section 37 of the Act, as clarified by this Court in MMTC
Ltd. v. Vedanta Ltd., is akin to the jurisdiction of the court un-
der Section 34 of the Act. Scope of interference by a court in an ap-
peal under Section 37 of the Act, in examining an order, setting
aside or refusing to set aside an award, is restricted and subject to
the same grounds as the challenge under Section 34 of the Act.
19. Therefore, the scope of jurisdiction under Section 34 and Sec-
tion 37 of the Act is not akin to normal appellate jurisdiction. It is
well-settled that courts ought not to interfere with the arbitral
award in a casual and cavalier manner. The mere possibility of an
alternative view on facts or interpretation of the contract does not
entitle courts to reverse the findings of the Arbitral Tribunal. In
Dyna Technologies Private Limited v. Crompton Greaves Lim-
ited (2019) 20 SCC 1, this Court held:
"24. There is no dispute that Section 34 of the Arbitration
Act limits a challenge to an award only on the grounds
provided therein or as interpreted by various courts. We need
to be cognizant of the fact that arbitral awards should not be
interfered with in a casual and cavalier manner, unless the
court comes to a conclusion that the perversity of the award
goes to the root of the matter without there being a possibility
of alternative interpretation which may sustain the arbitral
award. Section 34 is different in its approach and cannot be
equated with a normal appellate jurisdiction. The mandate
under Section 34 is to respect the finality of the arbitral
award and the party autonomy to get their dispute adjudic-
ated by an alternative forum as provided under the law. If the
courts were to interfere with the arbitral award in the usual
course on factual aspects, then the commercial wisdom be-
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hind opting for alternate dispute resolution would stand frus-
trated.
25. Moreover, umpteen number of judgments of this Court
have categorically held that the courts should not interfere
with an award merely because an alternative view on facts
and interpretation of contract exists. The courts need to be
cautious and should defer to the view taken by the Arbitral
Tribunal even if the reasoning provided in the award is im-
plied unless such award portrays perversity unpardonable
under Section 34 of the Arbitration Act."
[Emphasis Supplied]
60. When the Section 37 Court hears an appeal from a judgment
passed under Section 34 of the Act, the scope of the appellate review
under Section 37 of the Act is to see if the Section 34 Court conducted
its review of the Arbitral Award in compliance with the law declared on
how Section 34 should be put to work. The Supreme Court has
repeatedly iterated that Courts must not lightly interfere with arbitral
awards. The scope of review by the Section 34 Court is also well
covered in multiple judgments of the Supreme Court. Even implied
reasons that are discernible and may be inferred to support the just and
fair outcome arrived at in arbitral awards, would be adequate to sustain
the arbitral award. To avoid prolixity, I do not think it necessary to
burden this judgment with quotations from these multiple judgments.
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61. The Impugned Judgment is not in consonance with the scope
and manner of review and interference set out in the law declared on
how to operate Section 34 of the Act. Therefore, in my opinion, the
Impugned Judgment is unsustainable and deserves to be set aside,
thereby, reviving the Arbitral Award.
62. Before parting with the matter, it is noted that SICOM had been
allowed to intervene in the Section 34 proceedings and is Respondent
No. 2 in this Appeal. SICOM's stance is aligned with that of Leaf
Biotech but what it wants is for the amount awarded to be released
directly to SICOM and not to Leaf Biotech. I am afraid this too is
outside the scope of jurisdiction under Section 34 and Section 37 of the
Act. SICOM is free to pursue such proceedings as available to it in law
to attach the rights to receipt of the proceeds of the Arbitral Award in
appropriate proceedings.
63. The Appeal is allowed in the aforesaid terms. Interim
Applications, if any, pending in the proceedings shall also stand
disposed of in these terms. Should any deposit have been made in the
course of this litigation, the same shall be released to Leaf Biotech
within a week of the expiry of four weeks from the date of upload of this
judgment on this Court's website.
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64. All actions required to be taken pursuant to this order shall be
taken upon receipt of a downloaded copy as available on this Court's
website.
[SOMASEKHAR SUNDARESAN, J.]
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