[Cites 22, Cited by 0]
Karnataka High Court
M/S. N. D. Developers Pvt. Ltd vs M/S. G. M. Infinite Dwellings (India) ... on 16 February, 2026
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COMAP No. 477 of 2024
HC-KAR
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 16TH DAY OF FEBRUARY, 2026
PRESENT
THE HON'BLE MR. VIBHU BAKHRU, CHIEF JUSTICE
AND
THE HON'BLE MR. JUSTICE C.M. POONACHA
COMMERCIAL APPEAL NO. 477 OF 2024
BETWEEN:
1. M/S. N.D. DEVELOPERS PVT. LTD.
REP. BY ITS MANAGING DIRECTOR
MR. M.K.K NAYEEM DURANI
OFFICE AT: 398, 1ST FLOOR
7TH CROSS, MICO LAYOUT
BTM 2ND STAGE, BENGALURU - 560 076
...APPELLANT
(BY SRI SRINIVASAN RAGHAVAN, SENIOR ADVOCATE A/W
SRI VEGADARSHI K, ADVOCATE FOR
SMT. MANEESHA KONGOVI, ADVOCATE)
AND:
1. M/S. G. M. INFINITE DWELLINGS
Digitally
signed by (INDIA) PVT. LTD.,
AMBIKA H B REP. BY ITS CHAIRMAN-MANAGING DIRECTOR
MR. GULAM MUSTAFA
Location:
High Court OFIE AT: 06, G.M. PEARL
of Karnataka 1ST STAGE, 1ST PHASE
BTM LAYOUT, BENGALURU 560 068
...RESPONDENT
(BY SRI J.P. DARSHAN, ADVOCATE)
THIS COMMERCIAL APPEAL IS FILED UNDER SECTION 13(1-
A) OF COMMERCIAL COURTS ACT, 2015 AND SECTION 37 OF THE
ARBITRATION AND CONCILIATION ACT 1996 PRAYING TO SET
ASIDE THE JUDGMENT DATED 15.07.2024 PASSED BY THE
LXXXVII ADDITIONAL CITY CIVIL & SESSIONS JUDGE AT
BANGALORE (CCH NO.88) IN COM.A.P. NO.99 OF 2022
(ANNEXURE-A) AND ETC.
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COMAP No. 477 of 2024
HC-KAR
THIS APPEAL, COMING ON FOR ADMISSION, THIS DAY,
JUDGMENT WAS DELIVERED THEREIN AS UNDER:
CORAM: HON'BLE MR. VIBHU BAKHRU, CHIEF JUSTICE
and
HON'BLE MR. JUSTICE C.M. POONACHA
ORAL JUDGMENT
(PER: HON'BLE MR. VIBHU BAKHRU, CHIEF JUSTICE)
1. The appellant [NDPL] has filed the present appeal under
Section 37(1)(c) of the Arbitration and Conciliation Act, 1996 [A&C
Act], impugning an order dated 15.07.2024 [impugned order]
passed by the Court of LXXXVII Additional City Civil and Sessions
Judge, Bengaluru [Commercial Court] in Com. A.P No.99/2022.
2. The respondent had filed the said application under Section
34 of the A&C Act seeking setting aside of the arbitral award dated
27.06.2022 passed in A.C No.285/2021 [impugned award]
rendered by an arbitral tribunal comprising a sole arbitrator
[Arbitral Tribunal] appointed by this Court by an order dated
08.10.2020 passed in CMP No.132/2018.
3. The impugned award was rendered in the context of the
disputes that had arisen between the parties in connection with a
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Memorandum of Understanding dated 02.05.2017 [the
Agreement].
4. The respondent had filed its statement of claim, inter alia,
praying as under:
"Pass an Award directing the Respondent to Assign the
Development Rights of the Suit Schedule Properties to
the Petitioner in terms of the Memorandum of
Understanding and Assignment agreement dated
02.05.2017."
5. As is evident from the above, the respondent claimed an
award for specific performance of the Agreement. The Arbitral
Tribunal dismissed this claim. However, it awarded an amount of
`9,30,00,000/- (Rupees nine crore thirty lakh only) along with
interest at the rate of 6% per annum from 07.11.2017 until the date
of payment, in favour of the respondent. The Arbitral Tribunal was
of the view that although the claim for specific performance of the
Agreement could not be granted, the respondent was entitled to a
refund of the amount paid as part of the consideration due under
the Agreement.
6. NDPL accepted the impugned award and did not prefer an
application under Section 34 of the A&C Act to set it aside.
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PREFATORY FACTS
7. NDPL is a company incorporated under the Companies Act,
1956 and is engaged in the business of developing real estate.
NDPL had acquired development rights to construct a multi-storied
apartment complex in respect of the subject land which is
described below:
Sr Hissa Area
Village Survey No
No No Acres Guntas
1 Doddakannelli 117 2 0 29
2 Doddakannelli 115 2 0 27
3 Doddakannelli 117 2 1 15
3 Doddakannelli 118 1 2 00
4 Doddakannelli 119 0 0 16½
5 Doddakannelli 115 2 0 27
6 Doddakannelli 117 2 1 18
TOTAL 7 12½
8. The respective owners of the parcels of land comprising the
subject land had executed joint development agreements with
NDPL for the development of an apartment complex [Project] on
the subject land.
9. Apparently, NDPL found it difficult to execute the
development works due to paucity of financial resources and
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therefore, entered into a Memorandum of Understanding dated
02.09.2014 [the MoU] with another company engaged in real
estate development, M/s. G-Corp Developers Private Limited [G-
Corp], for the development of the Project. According to NDPL, it
entered into a settlement whereby G-Corp agreed to cancel the
MoU for a consideration of `11,00,00,000/- (Rupees eleven crores
only).
10. In the above background, the parties entered into the
Agreement under which NDPL agreed to assign its development
rights in respect of the subject land to the respondent. NDPL also
represented that the MoU with G-Corp had not been acted upon
and was mutually cancelled. NDPL had agreed to pay an amount
of `11,00,00,000/- (Rupees eleven crores only) to G-Corp.
11. In terms of the Agreement, the respondent agreed to pay a
sum of `47,00,00,000/- (Rupees forty seven crores only) as
consideration for NDPL assigning the development rights.
12. The respondent paid a sum of `9,30,00,000/- (Rupees nine
crore and thirty lakh only) and did not pay the balance amount.
Resultantly, NDPL sent a notice dated 07.08.2017 calling upon the
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respondent to pay the balance amount of `37,70,00,000/- (Rupees
thirty seven crore and seventy lakh only) as agreed under the
Agreement. Concededly, the respondent did not send any written
response to the said notice. However, thereafter, the respondent
issued a notice dated 07.11.2017, invoking the arbitration
agreement and seeking consent to the appointment of a sole
arbitrator. Thereafter, the respondents filed a petition under Section
11 of the A&C Act before this Court (CMP No. 132/2018), which
was allowed. The respondent filed its statement of claims before
the Arbitral Tribunal, and NDPL filed its statement of objections.
13. The arbitral proceedings culminated in the impugned award.
THE DISPUTE
14. The respondent filed a statement of claims stating that
NDPL had represented that the MoU with G-Corp was cancelled
for a payment of `11,00,00,000/-. It claimed that NDPL had given
the respondent to understand that it would secure documents
confirming the cancellation of the MoU dated 02.09.2014, which
was entered into between NDPL and G-Corp. It claimed that NDPL
had also assured that it would secure the signatures of the
landowners to confirm the joint development agreements in favour
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of the respondent. Additionally, it would extend full cooperation to
the respondent until completion of the Project.
15. The respondent claimed that, under the Agreement, NDPL
was required to secure rectification of the joint development
agreements and general powers of attorney from the landowners,
confirming the assignments of those agreements in favour of the
respondent. It claimed that there were constant negotiations and
communications between its officials and the representatives of the
NDPL regarding progress in that regard. However, NDPL did not
take the necessary steps to perform its obligations under the
Agreement. The respondent claimed that NDPL's inaction led to
the Agreement's terms being neglected.
16. The respondent also claimed that it had requested NDPL to
settle the matter with G-Corp and forward the draft to the
respondent but, NDPL neither forwarded the settlement agreement
nor presented a concrete proposal to negotiate with G-Corp
regarding the assignment of the development rights.
17. The respondent also acknowledged receipt of a notice dated
07.08.2017 and was ready and willing to pay the balance of the
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consideration. However, it claimed that NDPL would be entitled to
the same only on performance of its obligations under the
Agreement.
18. The respondent filed a petition before the learned
Commercial Court (AA No.346/2017) seeking interim measures of
protection restraining NDPL from encumbering or transferring
development rights in respect of the Project. The learned
Commercial Court passed an exparte order dated 04.09.2017;
however, it vacated the same on 14.08.2019.
19. Thereafter, the respondent also filed an appeal (MFA
No.968/2020) seeking interim measures of protection. This Court
passed an order dated 23.11.2020 restraining NDPL from
transferring the development rights to any third party and extended
the interim order for a period of six weeks to enable the respondent
to approach the Arbitral Tribunal.
20. The respondent once again approached the learned
Commercial Court in Com A.A.No.202/2021 for interim measures
of protection. By an order dated 16.11.2021, the learned
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Commercial Court restrained NDPL from encumbering or changing
the nature of the subject land.
21. NDPL filed its written statement of objections to the
respondent's claim for interim measures under Section 17 of the
A&C Act. It claimed that the respondent had agreed to pay upfront
consideration of `47,00,00,000/- out of which `11,00,00,000/- was
required to be paid directly to G-Corp on or before 30.05.2015 to
enable NDPL to complete the settlement with G-Corp for
cancellation of the MoU between NDPL and G-Corp. However, the
respondent failed to pay the amount of `11,00,00,000/- as agreed
under Clause 6 of the Agreement. NDPL claimed that since the
respondent had failed to make payment as agreed, it had lost all
rights under the said Agreement.
THE IMPUGNED AWARD
22. The Arbitral Tribunal examined the rival contentions and
framed the following issues for consideration:
"1. Whether the claimant proves that it is entitled to
the assignment of the development rights of the of the
suit schedule property in terms Memorandum of
Understanding and the Assignment Agreement dated
02.05.2017?
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2. Whether the respondent proves that the claimant
has committed the breach of the MOU disentitling to it to
claim any relief?
3. Whether the respondent proves that the MOU is
not capable of specific performance?
4. Whether the respondent proves that this petition
suffers from the non-joinder of necessary parties?"
23. The Arbitral Tribunal observed that the respondent had paid
`9,30,00,000/- but failed to settle the remaining `37,70,00,000/-
within the specified period. The Tribunal concluded that the
respondent was not entitled to demand the assignment of
development rights because it had not paid the agreed
consideration and had not requested additional time to do so.
Furthermore, the Arbitral Tribunal noted that the legal notice dated
07.08.2017 issued on behalf of NDPL elicited no response.
24. The Arbitral Tribunal accepted NDPL's contention that
further steps for cancellation of the MoU between NDPL and
G-Corp could not be taken as the respondent had failed to pay the
amount of `11,00,00,000/- to G-Corp as agreed under Clause 6.3
of the Agreement. The Arbitral Tribunal also found that the
respondent had failed to establish that it was ready and willing to
perform its obligations of the Agreement. Accordingly, the first
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issue - Whether the respondent was entitled to assignment of the
development rights - was decided against the respondent. The
Arbitral Tribunal faulted the respondent for failing to comply with its
payment obligations under the Agreement. Notwithstanding the
same, the Arbitral Tribunal held that the respondent would be
entitled to a refund of the amount of `9,30,00,000/- even though it
had not performed its obligations under the Agreement.
THE IMPUGNED ORDER
25. The learned Commercial Court examined the opposing
arguments and ruled that the terms and clauses of the Agreement
are reciprocal in nature, binding both NDPL and the respondent.
The learned Commercial Court noted that since the Agreement
was dated 02.05.2017 and NDPL issued a legal notice on
07.08.2017 demanding the respondent to settle the remaining
payment, it indicated that during this period, NDPL had not fulfilled
its obligations to secure signatures from the landowners or to
attempt executing the cancellation deed with G-Corp. The learned
Commercial Court also observed that NDPL's act of simply issuing
a legal notice without taking steps to meet its responsibilities
demonstrated a failure to perform its part of the obligations and
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faulted the Arbitral Tribunal for not recognising this. The learned
Commercial Court concluded that it was evident that both parties
failed to carry out their respective obligations and faulted the
Arbitral Tribunal for overlooking NDPL's failure to persuade the
landowners and G-Corp to execute the required documents.
26. The learned Commercial Court referred to Sections 51 to 54
and Section 20 of the Indian Contract Act, 1872 [the Contract Act]
and observed that no promisor is required to perform his promise
unless the other party is ready and willing to perform the reciprocal
promise. In this case, NDPL had also not come forward to perform
its obligations for bringing the landowners and G-Corp to execute
the assignment deed in favour of the respondent. The learned
Commercial Court held that the impugned award was contrary to
the specific terms of the Agreement and thus, was liable to be
interfered with on the ground that it is patently illegal and opposed
to the public policy of India.
27. The learned Commercial Court referred to the decisions of
the Supreme Court in the case of Associate Builders vs. Delhi
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Development Authority1 and Oil & Natural Gas Corporation
Ltd. vs. Saw Pipes Limited2 and held that the impugned award
was contrary to the specific terms of the Agreement and opposed
to public policy of India.
REASONS AND CONCLUSIONS
28. As apparent from the above, the dispute between the
parties essentially centres around the terms of the Agreement.
29. The recitals of the Agreement clearly record that NDPL was
required to pay a sum of `11,00,00,000/- to G-Corp for cancellation
of the MoU.
30. The parties had agreed that NDPL would execute and
register the assignment agreement assigning the joint development
agreements and the powers of attorney on the terms and
conditions set out in the Agreement. NDPL was referred to as the
party of the first part, and the respondent was referred to as the
party of the second part in the Agreement. The second recital and
(2015) 3 SCC 49
(2003) 5 SCC 705
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some of the clauses of the Agreement, which are relevant to the
dispute, are set out below:
"AND WHEREAS, the PARTY OF FIRST PART though
acquired the development rights from the erstwhile
owners in the manner above said have found it difficult
to carry out the development works owing to their
financial shortfall have with an intent to delegate the
development rights to another Developer, had entered
into a Memorandum of Understanding dated 02.09.2014
with one M/s.G:Corp Developers Pvt.Ltd and since the
same was not acted upon, the said MOU was mutually
cancelled by the PARTY OF FIRST PART and the said
M/s.G:Corp Developers Pvt.Ltd and in lieu of the
cancellation the PARTY OF FIRST PART has agreed to
settle a sum of Rs.11,00,00,000/- (Rupees Eleven
Crores only) to the said M/s. G:Corp Developers
Pvt.Ltd.
xxx xxx xxx
2.1 The PARTY OF FIRST PART and PARTY OF SECOND
PART shall duly execute and register an Assignment
Agreement of the Joint Development Agreements and
General Powers of Attorney on the terms and conditions
contained herein.
2.2 That in pursuance of this Agreement and in
consideration of the benefits accruing herein, the
PARTY OF FIRST PART hereby agree to assign the
Development rights to develop the Schedule Property
for construction of apartment complex on the terms and
conditions set-forth in the said Joint Development
Agreements and the PARTY OF SECOND PART
agrees to develop the Schedule Property in accordance
with the terms of the said Joint Development
Agreements and in accordance with the Applicable
Laws.
2.3 That on registration of the Deed of Assignment of Joint
Development Agreements, the PARTY OF SECOND
PART shall be duly placed in the position of the PARTY
OF FIRST PART and the PARTY OF SECOND PART
shall be vested with all the rights, obligations and
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powers acquired by the PARTY OF FIRST PART under
the said Joint Development Agreements.
2.7 That the PARTY OF FIRST PART shall ensure that they
shall bring the OWNERS and to secure their signatures
whenever required to substantiate the Assignment of
the Joint Development in favour of the PARTY OF
SECOND PART and the PARTY OF FIRST PART shall
be solely responsible to ensure that the OWNERS shall
extend their full cooperation to the PARTY OF SECOND
PART in joint development in all respect until the
completion of the project."
31. It is clear from the above that the parties had agreed to
execute a Deed of Assignment of Joint Development Agreements,
and on the said deed being registered, the respondent would be
vested with all rights and obligations of NDPL under the joint
development agreements. In consideration of the same, the
respondent had agreed to pay a sum of `47,00,00,000/-. Clause 6
of the said Agreement, which sets out the consideration to be paid
by the respondent, is set out below:
"6. CONSIDERATION:
In Consideration of the OWNERS/ PARTY OF FIRST
PART entering into this Assignment of Joint
Development Agreement the PARTY OF SECOND
PART shall pay upfront consideration of
Rs.47,00,00,000/ (Rupees Forty-Seven Crores) to the
PARTY OF FIRST PART in the following manner:
6.1. The PARTY OF SECOND PART has this day paid
a sum of Rs.1,00,00,000/-(Rupees One Crore only)
through-a-Cheque bearing No-002172, dated
02.05.2017 drawn at Bank of Baroda, BTM Layout
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Branch, Bangalore to the PARTY OF FIRST PART and
the receipt whereof is duly admitted and acknowledged
by the PARTY OF FIRST PART towards the advance
and part sale consideration.
6.2. The PARTY OF SECOND PART has also paid a
sum of Rs.4,00,00,000/-(Rupees Four Crores only) to
the PARTY OF THE FIRST PART in the following
manner;
(a) A sum of Rs.2,00,00,000/-(Rupees Two Crores
only) vide Cheque bearing No-002175, dated
04.05.2017 drawn at Bank of Baroda, BTM Layout
Branch, Bangalore and
(b) A sum of Rs.2,00,00,000/-(Rupees Two Crores
only) vide Cheque bearing No-002174, dated
10.05.2017 drawn at Bank of Baroda, BTM Layout
Branch, Bangalore and the receipt whereof is duly
admitted and acknowledged by the PARTY OF FIRST
PART towards the part sale consideration.
6.3. The PARTY OF SECOND PART shall pay a sum
of Rs. 11,00,00,000/-(Rupees Eleven Crore only) to the
said M/s.G:Corp Developers Pvt.Ltd through the
PARTY OF FIRST PART on or before 30th May 2017
for the purpose of settlement to the said M/s.G:Corp
Developers Pvt.Ltd towards the final settlement for the
cancellation of the Memorandum of Understanding
entered between the Party of FIRST PART and the
said M/s.G: Corp Developers Pvt.Ltd.
6.4. The PARTY OF SECOND PART shall pay a sum
of Rs. 10,00,00,000/-(Rupees Ten Crores only) on or
before 15th June 2017 to the PARTY OF FIRST PART
towards the part Sale Consideration.
6.5. The PARTY OF SECOND PART shall pay the
balance sum of Rs.21,00,00,000/-(Rupees Twenty One
Crores only) to the PARTY OF FITRST PART within a
period of 90 days from this date towards the total sale
consideration for the assignment of the Joint
Development pertaining to the Schedule Properties.
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6.6. That the PARTY OF FIRST PART shall duly settle
the agreed payment of Rs.11,00,00,000/- (Rupees
Eleven Crores only) to the M/s.G:.Corp Developers
Pvt.Ltd and cancel the Memorandum of Understanding
dated 02.09.2014, under execution of necessary
documents and deliver the same to the PARTY OF
SECOND PART."
32. In addition to the above, the respondent had also
undertaken to complete the entire development of the Project
within thirty-six months of the plan sanction date, with a further six-
month grace period.
33. Clause 8 of the Agreement is relevant and is reproduced
below:
"8. TIME LINE FOR COMPLETION OF THE PROJECT:
8.1.The PARTY OF SECOND PART shall complete the
entire -Development in respect of the Project within 36
months (construction period) from the Plan Sanction
date/ Commencement Certificate obtained from
Authority, with a further extension of 06 months grace
period and in the case of any Force Majeure events the
time shall be further extended based on the nature of
the Force Majeure.
8.2.The PARTY OF SECOND PART shall at their cost
engage architects, engineers and contractors who have,
the necessary experience and expertise to construct the
Residential Apartment If any dispute arises between the
PARTY OF SECOND PART and architects, engineers,
contractors, laborers and/or material suppliers engaged
and/or appointed by the PARTY OF SECOND PART for
execution of the development work on the Schedule
Property and shall be resolved and/or settled by the
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PARTY OF SECOND PART on his own and at his own
costs."
34. It is apparent from the above that a specific timeline had
been agreed for payment of the "upfront" consideration of
`47,00,00,000/-. Clause 6.3 of the Agreement is relevant. In terms
of the said clause, the respondent was required to pay a sum of
`11,00,00,000/- directly to G-Corp "through NDPL" on or before
30.05.2017 towards the final settlement for the cancellation of the
MoU entered into between NDPL and G-Corp. Plainly, NDPL
could not execute and register the final deed of assignment prior to
payment of the consideration.
35. It is not necessary for this Court to re-adjudicate the
disputes between the parties, as that is not within the scope of
proceedings under Section 34 or 37 of the A&C Act. The Arbitral
Tribunal examined the dispute between the parties and found that
the respondent failed to perform its obligations. The Arbitral
Tribunal found that the respondent had failed to pay even the initial
amount of `11,00,00,000/-, which was necessary for settling the
amounts due for cancellation of the Memorandum of
Understanding between NDPL and G-Corp.
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36. NDPL had issued a notice calling upon the respondent to
pay the balance amount. However, the respondent had not sent
any written response to the said notice. Although the respondent
stated that there were discussions and negotiations, no written
communication was sent by the respondent calling upon the NDPL
to comply with any specific obligation.
37. Although the learned Commercial Court had referred to
Sections 51 to 54 of the Contract Act, it had not indicated which
section would be applicable in the present case. Clearly, Sections
53 and 54 of the Contract Act have no application, as no one has
claimed that the respondent was prevented by NDPL from
performing its obligations. There is no dispute that the Agreement
also contained obligations that NDPL was required to perform.
However, the question whether the said obligations were required
to be performed prior to receipt of consideration is a contentious
issue.
38. Clause 6 of the Agreement expressly provided that the
respondent "shall pay upfront consideration of `47,00,00,000/ (Rupees
Forty-Seven Crores)". However, according to the respondent, the word
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'upfront' was not descriptive of when the payment was to be made, but
merely defined the consideration.
39. The Arbitral Tribunal examined the matter and found that
the respondent had failed to perform its obligations. Clearly, it was
not open for the learned Commercial Court to re-adjudicate the
said issue and substitute its opinion in place of that of the Arbitral
Tribunal. The Court was not required to act as a first appellate
court, re-evaluate the evidence and material relied upon by the
parties and re-adjudicate the disputes. In MMTC Ltd. v. Vedanta
Ltd.3, the Supreme Court explained the scope of interference
under Section 34 of the A&C Act as under:
"11. As far as Section 34 is concerned, the position is
well-settled by now that the Court does not sit in
appeal over the arbitral award and may interfere on
merits on the limited ground provided under Section
34(2)(b)(ii) i.e. if the award is against the public policy
of India. As per the legal position clarified through
decisions of this Court prior to the amendments to the
1996 Act in 2015, a violation of Indian public policy, in
turn, includes a violation of the fundamental policy of
Indian law, a violation of the interest of India, conflict
with justice or morality, and the existence of patent
illegality in the arbitral award. Additionally, the concept
of the "fundamental policy of Indian law" would cover
compliance with statutes and judicial precedents,
adopting a judicial approach, compliance with the
principles of natural justice, and Wednesbury
(2019) 4 SCC 163
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[Associated Provincial Picture Houses v. Wednesbury
Corpn., (1948) 1 KB 223 (CA)] reasonableness.
Furthermore, "patent illegality" itself has been held to
mean contravention of the substantive law of India,
contravention of the 1996 Act, and contravention of the
terms of the contract.
12. It is only if one of these conditions is met that the
Court may interfere with an arbitral award in terms of
Section 34(2)(b)(ii), but such interference does not
entail a review of the merits of the dispute, and is
limited to situations where the findings of the arbitrator
are arbitrary, capricious or perverse, or when the
conscience of the Court is shocked, or when the
illegality is not trivial but goes to the root of the matter.
An arbitral award may not be interfered with if the view
taken by the arbitrator is a possible view based on
facts. (See Associate Builders v. DDA [Associate
Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ)
204] . Also see ONGC Ltd. v. Saw Pipes Ltd. [ONGC
Ltd. v. Saw Pipes Ltd., (2003) 5 SCC 705] ; Hindustan
Zinc Ltd. v. Friends Coal Carbonisation [Hindustan
Zinc Ltd. v. Friends Coal Carbonisation, (2006) 4 SCC
445] ; and McDermott International Inc. v. Burn
Standard Co. Ltd. [McDermott International Inc. v. Burn
Standard Co. Ltd., (2006) 11 SCC 181] )"
40. In PSA Sical Terminals (P) Ltd. v. V.O. Chidambranar
Port Trust4, the Supreme Court reiterated the aforesaid principle of
law and held as under:
"40. It will thus appear to be a more than settled legal
position, that in an application under Section 34, the
court is not expected to act as an appellate court and
reappreciate the evidence. The scope of interference
would be limited to grounds provided under Section 34
of the Arbitration Act. The interference would be so
warranted when the award is in violation of "public
(2023) 15 SCC 781
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policy of India", which has been held to mean "the
fundamental policy of Indian law". A judicial
intervention on account of interfering on the merits of
the award would not be permissible. However, the
principles of natural justice as contained in Sections
18 and 34(2)(a)(iii) of the Arbitration Act would
continue to be the grounds of challenge of an award.
The ground for interference on the basis that the
award is in conflict with justice or morality is now to be
understood as a conflict with the "most basic notions
of morality or justice". It is only such arbitral awards
that shock the conscience of the court, that can be set
aside on the said ground. An award would be set
aside on the ground of patent illegality appearing on
the face of the award and as such, which goes to the
roots of the matter. However, an illegality with regard
to a mere erroneous application of law would not be a
ground for interference. Equally, reappreciation of
evidence would not be permissible on the ground of
patent illegality appearing on the face of the award.
41. The Arbitral Tribunal, in addition to a finding that the
respondent had failed to perform its obligation, also held that the
Agreement could not be specifically enforced. Undisputedly, the
specific performance of the assignment of the development rights
would require the consent of the owners of the parcels of land
comprising the subject land. It is also the respondent's case that
the performance of the Agreement required NDPL to bring the
landowners and secure their signatures confirming the rectification
of the joint development agreements executed between NDPL and
the respective landowners. The Arbitral Tribunal could not have
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issued any directions in this regard as the landowners were not
parties to the Agreement. Thus, they could not be compelled to
agree to the assignment of joint development rights to the
respondent. The learned Commercial Court has not appreciated
the Arbitral Tribunal's findings in this regard.
42. The Arbitral Tribunal also held that the respondent had
failed to establish that it was ready and willing to perform its
obligations. Concededly, the respondent had not produced any
documents or materials to establish that it had made arrangements
to pay `37,70,00,000/- that remained to be paid to NDPL.
43. Although the learned Commercial Court referred to the
Supreme Court's decision in Associate Builders (supra), the
decision to hold that the impugned award is patently illegal or
opposed to public policy is contrary to the ratio decidendi of that
decision. The impugned order travels beyond the scope of
interference in an arbitral award, as explained in the said decision.
44. The fundamental premise that the impugned award is
contrary to the provisions of the Contract Act is also not
substantiated. The learned Commercial Court has not pointed the
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provisions of the Contract Act, which the impugned award falls foul
of.
45. We are unable to accept that the impugned award can be
readily inferred as being contrary to the terms of the Agreement
between the parties.
46. The learned Commercial Court has erred in embarking on
the exercise, which is clearly in the nature of re-adjudication of the
disputes between the parties. The adjudicatory exercise conducted
by the learned Commercial Court is beyond the scope of Section
34 of the A&C Act. The learned Commercial Court was required to
examine whether the impugned award is required to be set aside
on the grounds as set out in Section 34 of the A&C Act and not re-
adjudicate the dispute.
47. The contention that the impugned award is patently illegal
and thus, liable to be set aside under Section 34(2A) of the A&C
Act, is also unsustainable. We consider it apposite to refer to the
following passage in the case of Delhi Airport Metro Express (P)
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Ltd. vs. DMRC5, which explains the scope of the ground of patent
illegality:
"29. Patent illegality should be illegality which goes to
the root of the matter. In other words, every error of
law committed by the Arbitral Tribunal would not fall
within the expression "patent illegality". Likewise,
erroneous application of law cannot be categorised as
patent illegality. In addition, contravention of law not
linked to public policy or public interest is beyond the
scope of the expression "patent illegality". What is
prohibited is for Courts to reappreciate evidence to
conclude that the award suffers from patent illegality
appearing on the face of the award, as Courts do not
sit in appeal against the arbitral award. The
permissible grounds for interference with a domestic
award under Section 34(2-A) on the ground of patent
illegality is when the arbitrator takes a view which is
not even a possible one, or interprets a clause in the
contract in such a manner which no fair-minded or
reasonable person would, or if the arbitrator commits
an error of jurisdiction by wandering outside the
contract and dealing with matters not allotted to them.
An arbitral award stating no reasons for its findings
would make itself susceptible to challenge on this
account. The conclusions of the arbitrator which are
based on no evidence or have been arrived at by
ignoring vital evidence are perverse and can be set
aside on the ground of patent illegality. Also,
consideration of documents which are not supplied to
the other party is a facet of perversity falling within the
expression "patent illegality".
48. It is clear from the above that the ground of patent illegality
is available only if the patent illegality goes to the root of the
dispute, and the Arbitral Tribunal's view is not a plausible one.
(2022) 1 SCC 131
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49. In the present case, we are unable to accept that the
impugned award is vitiated by patent illegality on the face of the
award.
50. The appeal is, accordingly, allowed and the impugned order
is set aside.
51. The parties are left to bear their own costs.
52. The pending interlocutory application also stands disposed
of.
Sd/-
(VIBHU BAKHRU)
CHIEF JUSTICE
Sd/-
(C.M. POONACHA)
JUDGE
AHB
List No.:1 Sl No.:2
