Punjab-Haryana High Court
Active Promoters Private Ltd vs Desh Raj And Ors on 18 November, 2024
Author: Arun Palli
Bench: Arun Palli
Neutral Citation No:=2024:PHHC:149676-DB
IN THE HIGH COURT OF PUNJAB AND HARYANA AT
CHANDIGARH
FAO-CARB-3-2020 (O&M)
Reserved on: 09.09.2024
Pronounced on: 18.11.2024
Active Promoters Private Limited
....Appellant
Versus
Desh Raj and Others
....Respondents
CORAM: HON'BLE MR. JUSTICE ARUN PALLI
HON'BLE MR. JUSTICE VIKRAM AGGARWAL
Present: Mr. Vipul Sharma, Advocate
for the appellant.
Mr. Aashish Chopra, Senior Advocate with
Ms. Rupa Pathania, Advocate;
Ms. Gurpreet Randhawa, Advocate and
Ms. Nitika Sharma, Advocate
for the respondents.
VIKRAM AGGARWAL, J.
1. By way of the present appeal, the appellant challenges the order dated
16.10.2019 passed by the Special Commercial Court, Gurugram vide which the
petition preferred by the appellant under Section 34 of the Arbitration and
Conciliation Act, 1996 (hereinafter referred to as the '1996 Act') was dismissed.
2. The respondents are owners of land measuring 39 Kanals 11 Marlas
(fully described in the pleadings) (hereinafter referred to as the 'land') situated in
village Tigra, Tehsil and District Gurugram.
3. A development agreement (Ex. C2) (hereinafter referred to as the
'agreement') was executed between the appellant and the respondents on
02.09.2005 as regards utilization of the land for development of a Commercial
Complex/IT Complex.
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4. Various terms and conditions were set out in the agreement. As per
the agreement, the appellant would develop the land at its own costs and expenses
and with its own resources after procuring/obtaining the requisite licenses,
permissions, sanctions and approvals of all competent authorities and would
construct a Commercial Complex/IT Complex. A sum of Rs.50,00,000/- had been
paid to the respondents as interest free refundable security deposit which was
agreed to be refunded within 15 days from the issuance of the occupation
certificate.
5. Time for completion of the Commercial Complex/IT Complex was
agreed to be the essence of the contract and a period of 06 years from the date of
execution of the agreement was fixed for completion of the project. In case of
default on the part of the appellant, the entire security amount was to be forfeited
and it was agreed that the agreement would automatically stand cancelled and all
documents executed between the parties would become null and void. There was
also a clause as regards force majeure and it was agreed that the agreement would
be subject to the same. It had also been agreed between the parties that if during
the subsistence of the agreement, the Government of Haryana or the Land
Acquisition Collector or any other authority acquired the land, the security amount
would be forfeited and the agreement would stand cancelled and the appellant
would not claim any expenditure or amount or lien on the land.
6. There were various others terms and conditions also which would not
be relevant for the purposes of the decision of the present appeal. On 12.12.2008,
land measuring 29 Kanals 11 Marlas out of the total land was notified under
Section 4 of the Land Acquisition Act, 1894 (hereinafter referred to as the '1894
Act'). By this time, License No.164 of 2008 had been granted. However,
declaration under Section 6 was issued on 11.12.2009 and award was also
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announced subsequently on 23.11.2011. Accordingly, some land out of the total
land came under acquisition whereas for some portion, license had been granted.
Some other litigation had also taken place.
7. Ultimately, a legal notice dated 23.03.2012 (Ex. R2) was issued by
the respondents informing the appellant that the agreement stood cancelled and
that the respondents would be at liberty to use the land in any manner whatsoever
and that the appellant would not be left with any concern or interest in the land.
The legal notice was followed by some more communications.
8. Eventually, since disputes had arisen between the parties, the
arbitration clause was invoked by the appellant and Mr. Justice V.K. Jhanji, a
former Judge of this Court was appointed as the sole Arbitrator.
9. Certain claims were set up by the appellant and counter claims were
set up by the respondents. After examining the evidence led by both sides, the
claim of the appellant and counter claims of the respondents were rejected. Costs
of Rs.4,00,000/- were imposed upon the appellant which were ordered to be paid
as litigation expenses to the respondents.
10. Aggrieved by the award, a petition under Section 34 of the 1996 Act
was preferred by the appellant which came to be declined by the Special
Commercial Court, Gurugram vide impugned order dated 16.10.2019, leading to
the filing of the instant appeal.
11. Learned counsel representing the respective parties were duly heard.
12. It was strenuously urged by learned counsel representing the
appellant that the Special Commercial Court, Gurugram erred in rejecting the
petition under Section 34 of the 1996 Act. It was submitted that the learned
Arbitrator had in fact set aside the entire development plan which was not within
the purview of the Arbitrator. It was further submitted that efforts had been made
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by the appellant for release of the land and for this purpose, the appellant pursued
litigation before the High Court and the Supreme Court and engaged top lawyers.
It was further submitted that time had never been agreed to be the essence of the
agreement and that the respondents were reaping benefits of the development
agreement till a very late stage and only when the land was about to be released
from acquisition, the respondents became dishonest and attempted to make a
unilateral exit from the development agreement. It was submitted that the Special
Commercial Court, Gurugram rejected the petition under Section 34 of the 1996
Act on flimsy grounds without appreciating the controversy in the correct
perspective.
13. Per contra, learned Senior counsel representing the respondents
defended the impugned order while laying emphasis upon the provisions of
Sections 34 and 37 of the 1996 Act and the law on the subject. It was submitted
that a petition under Section 34 of the 1996 Act is not an appeal and an award can
be interfered with only on the limited grounds available under Section 34 of the
1996 Act. Learned Senior counsel submitted that the learned Arbitrator considered
every possible aspect and dealt with the same extensively and, therefore, no
interference is called for.
14. We have considered the submissions made by learned counsel for the
parties and have also perused the record which was duly summoned.
15. Before adverting to the merits of the case, it would be essential to
notice the provisions of Sections 34 and 37 of the 1996 Act. Section 34 (1) states
that an arbitral award can be challenged by way of an application moved in
accordance with the provisions of Section 34 (2) and 34 (3). Section 34 (2) and
Section 34 (3) lay down as under:-
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"34. Application for setting aside arbitral award.
- - - - - - - - - -
(2) An arbitral award may be set aside by the Court only if-
(a) the party making the application [establishes on the basis of the
record of the arbitral tribunal that]-
(i) a party was under some incapacity; or
(ii) the arbitration agreement is not valid under the law to which
the parties have subjected it or, failing any indication thereon,
under the law for the time being in force; or
(iii) the party making the application was not given proper notice of
the appointment of an arbitrator or of the arbitral proceedings or
was otherwise unable to present his case; or
(iv) the arbitral award deals with a dispute not contemplated by or
not falling within the terms of the submission to arbitration, or it
contains decisions on matters beyond the scope of the submission to
arbitration:
Provided that, if the decisions on matters submitted to arbitration
can be separated from those not so submitted, only that part of the
arbitral award which contains decisions on matters not submitted
to arbitration may be set aside; or
(v) the composition of the arbitral tribunal or the arbitral
procedure was not in accordance with the agreement of the
parties, unless such agreement was in conflict with a provision of
this Part from which the parties cannot derogate, or, failing such
agreement, was not in accordance with this Part; or
(b) the Court finds that--
(i) the subject-matter of the dispute is not capable of settlement by
arbitration under the law for the time being in force, or
(ii) the arbitral award is in conflict with the public policy of India.
[Explanation 1.- For the avoidance of any doubt, it is clarified that
an award is in conflict with the public policy of India, only if,-
(i) the making of the award was induced or affected by fraud or
corruption or was in violation of section 75 or section 81; or
(ii) it is in contravention with the fundamental policy of Indian
law; or
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(iii) it is in conflict with the most basic notions of morality or justice.
Explanation 2.-
For the avoidance of doubt, the test as to whether there is a
contravention with the fundamental policy of Indian law shall not
entail a review on the merits of the dispute.
(2A) An arbitral award arising out of arbitrations other than
international commercial arbitrations, may also be set aside by the
Court, if the Court finds that the award is vitiated by patent illegality
appearing on the face of the award:
Provided that an award shall not be set aside merely on the ground
of an erroneous application of the law or by re appreciation of
evidence.
(3) An application for setting aside may not be made after three
months have elapsed from the date on which the party making that
application had received the arbitral award or, if a request had been
made under section 33, from the date on which that request had been
disposed of by the arbitral tribunal:
Provided that if the Court is satisfied that the applicant was
prevented by sufficient cause from making the application
within the said period of three months it may entertain the
application within a further period of thirty days, but not
thereafter.
16. After the petition under Section 34 is decided, an appeal can be
preferred under Section 37 of the 1996 Act. As per Section 37 (1) (c), an appeal
can be preferred from an order setting aside or refusing to set aside an arbitral
award under Section 34 of the 1996 Act.
17. Coming to the law on the subject, it is well settled that the jurisdiction
of the Court under Section 34 of the 1996 Act is relatively narrow and the
jurisdiction of the Appellate Court under Section 37 is all the more circumscribed
and, therefore, the scope for interference is limited. This settled view was recently
reiterated by the Supreme Court of India in the case of 'National Highways
Authority of India Vs. M/s Hindustan Construction Company Limited', 2024
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AIR (SC) 2383. While referring to the judgments in the case of 'Associate
Builders Vs. DDA', (2015) 3 SCC 49, 'McDermott International Inc. Vs. Burn
Standard Co. Ltd.', (2006) 11 SCC 181, 'MMTC Ltd. Vs. Vedanta Ltd.'., (2019)
4 SCC 163 and other judgments, it was held by the Supreme Court as under:-
"We may note here that the impugned judgments in all connected
appeals are based on the impugned judgment in Civil Appeal no. 4702 of
2023. In this case, we are dealing with concurrent findings arrived at by the
Arbitral Tribunal, the learned Single Judge in a petition under section 34 of
the Arbitration Act, and the Division Bench in appeal under section 37 of the
Arbitration Act. In this case, we are concerned with the construction of the
terms of a contract between the parties. In the case of Parsa Kente Collieries
Ltd. v. Rajasthan Rajya Vidyut Utpadan Nigam Ltd. (2019) 7 SCC 236, in
paragraphs 9.1 and 9.2, this Court held thus:
'9.1. In Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49
: (2015) 2 SCC (Civ) 204], this Court had an occasion to consider in
detail the jurisdiction of the Court to interfere with the award passed by
the Arbitrator in exercise of powers under section 34 of the Arbitration
Act. In the aforesaid decision, this Court has considered the limits of
power of the Court to interfere with the arbitral award. It is observed
and held that only when the award is in conflict with the public policy
in India, the Court would be justified in interfering with the arbitral
award. In the aforesaid decision, this Court considered different heads
of "public policy in India" which, inter alia, includes patent illegality.
After referring section 28(3) of the Arbitration Act and after
considering the decisions of this Court in McDermott International Inc.
v. Burn Standard Co. Ltd. [McDermott International Inc. v. Burn
Standard Co. Ltd., (2006) 11 SCC 181], SCC paras 112-113 and,
Rashtriya Ispat Nigam Ltd. V. Dewan Chand Ram Saran [Rashtriya
Ispat Nigam Ltd. v. Dewan Chand Ram Saran, (2012) 5 SCC 306], SCC
paras 43-45, it is observed and held that an Arbitral Tribunal must
decide in accordance with the terms of the contract, but if an Arbitrator
construes a term of the contract in a reasonable manner, it will not
mean that the award can be set aside on this ground. It is further
observed and held that construction of the terms of a contract is
primarily for an Arbitrator to decide unless the Arbitrator construes the
contract in such a way that it could be said to be something that no fair
minded or reasonable person could do. It is further observed by this
Court in the aforesaid decision in para 33 that when a court is applying
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the "public policy" test to an arbitration award, it does not act as a
court of appeal and consequently errors of fact cannot be corrected. A
possible view by the Arbitrator on facts has necessarily to pass muster
as the Arbitrator is the ultimate master of the quantity and quality of
evidence to be relied upon when he delivers his arbitral award. It is
further observed that thus an award based on little evidence or on
evidence which does not measure up in quality to a trained legal mind
would not be held to be invalid on this score.
9.2. Similar is the view taken by this Court in NHAI v. ITD
Cementation (India) Ltd. [NHAI v. ITD Cementation (India) Ltd.,
(2015) 14 SCC 21 : (2016) 2 SCC (Civ) 716], SCC para 25 and SAIL v.
Gupta Brother Steel Tubes Ltd. [SAIL v. Gupta Brother Steel Tubes
Ltd., (2009) 10 SCC 63 : (2009) 4 SCC (Civ) 16], SCC para 29.
8. This Court laid down the law regarding the scope of interference in
a petition under section 34 of the Arbitration Act in the case of MMTC Ltd.
v. Vedanta Ltd. (2019) 4 SCC 163. Paragraph 11 reads thus:
'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 [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.'
9. This Court, in the case of UHL Power Company Ltd. v. State of
Himachal Pradesh (2022) 4 SCC 116 held that the jurisdiction of the Court
under Section 34 is relatively narrow and the jurisdiction of the Appellate
Court under section 37 of the Arbitration Act is all the more circumscribed.
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In the light of the limited scope for interference under Section 37 appeal, we
will have to deal with the submissions."
18. Reference in this regard can also be made to the judgment of a Three
Judges Bench of the Supreme Court of India in the case of 'Konkan Railway
Corporation Limited Vs. Chenab Bridge Project Undertaking'. (2023) 9 SCC
85:-
"14. Analysis: 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., (2019) 4 SCC 163 is akin to the jurisdiction of the court
under Section 34 of the Act. Scope of interference by a court in an appeal
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.
15. Therefore, the scope of jurisdiction under Section 34 and Section
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 Limited (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 adjudicated 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 behind opting
for alternate dispute resolution would stand frustrated.
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
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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 implied unless such award portrays perversity
unpardonable under section 34 of the Arbitration Act.'
16. In the present case, the Arbitral Tribunal interpreted the
contractual clauses and rejected the Respondent's claims pertaining to
Disputes I, III and IV. The findings were affirmed by the Single Judge of the
High Court in a challenge under Section 34 of the Act, who concluded that
the interpretation of the Arbitral Tribunal was clearly a possible view, that
was reasonable and fair-minded in approach."
19. Reverting to the facts, it would be essential to notice that the learned
Arbitrator considered the matter in detail and detailed findings were returned. The
argument as regards the force majeure clause was dealt with in extenso and it was
observed that the same had not been set up in the claim petition but was argued at
the time of arguments. It was held that this argument had no basis because out of
total land measuring 39 Kanals 11 Marlas which formed a part of the agreement,
only land measuring 8 Kanals 7 Marlas was the subject matter of acquisition
which too was prior to the date of execution of the agreement and the rest of the
land measuring 31 Kanals 4 Marlas was not a subject matter of acquisition either
at the time of the execution of agreement or at the time when the claimant had
submitted its application for the grant of license in the first instance i.e. on
12.03.2007. It was held after discussing the entire issue in detail that the claimant
i.e. the appellant herein had failed in its obligations. The submissions as regards
the appellant not being able to carry out its obligations on account of de-licensing
of their land etc. was found to be erroneous and misleading.
20. As regards the argument that although time was the essence of the
agreement, the said time had not started as the possession of the land had not been
handed over was also found to be an attempt to justify their failure to carry out
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their obligations in time. It was held that the appellant herein had failed to get the
license for the total land due to its own acts of omission. Similarly other
arguments were also dealt with extensively and were rejected.
21. The Special Commercial Court, Gurugram also dealt with the matter
strictly in accordance with law and rightly held that the petition under Section 34
had been drafted in such a manner as if it was an appeal against the award. It was
rightly noticed that the entire thrust and in the petition was upon the facts and the
evidence produced before the Arbitrator which, in any case, could not be
reappraised. It was held that nothing had been brought before the Court which
could even remotely establish that any finding of the Arbitrator was against the
Public Policy of India or that the learned Arbitrator had violated the law. The
Court further held that the findings of fact recorded by the Arbitrator could not be
set aside simply even if a different view could be taken. While noticing the law on
the subject, the Special Commercial Court, Gurugram rightly rejected the petition.
We do not find any illegality in the same for the reasons aforementioned.
In view of the facts and circumstances as have been discussed in the
preceding paragraphs and keeping in mind the law on the subject, we find the
appeal to be completely devoid of merit and accordingly dismiss the same.
(ARUN PALLI) (VIKRAM AGGARWAL)
JUDGE JUDGE
18.11.2024
Prince Chawla
Whether speaking/reasoned : Yes/No.
Whether reportable : Yes/No.
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