The Honorable Supreme Court held that an arbitral award cannot be set aside merely on the grounds of erroneous application of law or misappreciation of evidence

 The Honorable Supreme Court held that an arbitral award cannot be set aside merely on the grounds of erroneous application of law or misappreciation of evidence.

 

The Supreme Court ruled that apart from grounds mentioned in section 34 (2)(b) of the Arbitration and Conciliation Act, an arbitrary award can be set aside only when it is vitiated by the patent illegality and not on the ground of an erroneous application of the law or by misappreciation of the evidence.

 

The Bench of Justices Ajay Rastogi and Sanjiv Khannamade the ruling while allowing an appeal that challenge a Punjab & Haryana High Court judgment that had affirmed an order passed by the District Judge wherein it was ruled that the application u/s 34 of Arbitration & Conciliation Act was inter alia was barred by limitation

      

Case : Haryana Urban Development V. Mehta Construction Company And Another, (SC) 348, 2022

   

           Arbitration and Conciliation Act, 1996, Section 34 (2)(a) - Arbitral award can be set aside by the court if the court finds the award is vitiated by patent illegality appearing on the face of the award - The award shall not be set aside merely on the ground of erroneous application of law or by misappreciation of evidence. (Para 15)

 

           Arbitration and Conciliation Act, 1996, Section 34 - The court may condone delay of a period up to thirty days in filing of the objections if it is satisfied that the applicant is prevented by sufficient cause from making an application under Section 34(1) of the Act.(Para 10)

 

 

                                                       Order

 

          Delay condoned. Leave granted.

 

1. The appellant before us – Haryana Urban Development Authority, Karnal, Haryana, and the respondent – M/s. Mehta Construction Company, on 6th July 1998, had entered into an agreement whereby the respondent was to construct water body, water body fall, pedestrian bridge, backwall of deck, pump chamber (partly above and partly below the GI pipe), lay CI and RCC pipes and all other works contingent thereto for development of town park in Sector 8 and 9 (Phase – II), Karnal, for an amount not exceeding Rs.32.50 lakhs. The scope of the work was enhanced to Rs.40,23,962/- and then to Rs.45,87,326/-.

 

2. The contractual work was completed on 24th August 1999. It is the case of the appellant that the respondent had failed to comply with the terms and conditions of the contract and complete the work within the contractual period, whereas it is the case of the respondent that the appellant was responsible for the delay in completion of the work.

 

3. In April 2012, the respondent filed an application before the Punjab and Haryana High Court under Section 11(6) of the Arbitration and Conciliation Act, 1996 (for short, the ‘Act’) for appointment of an arbitrator for adjudication of disputes in the subject contract.

 

4. The application was disposed of vide order dated 19th October 2012 with a direction to the parties to approach the Arbitrator-cum- Superintending Engineer, HUDA Circle, Karnal in terms of Clause 25-A of the agreement for settlement of disputes.

 

5. The sole arbitrator passed an award dated 20th December 2013 awarding an amount of Rs.1,19,69,945/- along with interest @ 18% per annum on the delayed payments.

 

6. On 28th March 2014, the appellant filed objections to the award before the Additional District Judge, Karnal, under Section 34 of the Act along with an application for condonation of delay. Upon notice, the respondent filed reply to both the objections under Section 34 and the application seeking condonation of delay.

 

7. By order dated 8th January 2018, the Additional District Judge, Karnal, held that the objections were barred by limitation and no plausible explanation was given to explain the delay. On the other hand, the respondents had duly proved the issues by “leading cogent and convincing evidence”. He also held that the award dated 20th December 2013 is perfect and a legal one and the fact that the respondent had completed the work after thirteen and a half months proved that the respondent was not able to comply with the terms and conditions of the contract. The appellant had granted extension for completion of work time and again without imposing penalty. Further, it was an admitted case that time was essence of the contract as there was a default clause.

 

8. The appellant preferred an appeal under Section 37 of the Act, which has been dismissed by the impugned judgment dated 11th December 2019 passed by the Single Judge of the Punjab and Haryana High Court. The reasoning given by the High Court reads as under:

“5. The Addl. District Judge, Karnal, while dismissing the objections filed by the appellant under Section 34 of the Act has observed that the arbitration award dated 20.12.2013 passed by the arbitrator is perfect and legal one and there is no ground proved on the file at the instance of the objector that the award suffers from any infirmities at all. It was further observed that the objections filed by the objector are barred by limitation as the same were not filed within the prescribed period. No plausible explanation could be given by the objector, for filing the objections at a belated stage. The Addl. District Judge, Karnal came to hold that the objections filed by the objector are not maintainable and the objections are also barred by limitation. Counsel for the appellant fails to point out any perversity in the findings returned by the court below. Counsel for the appellant miserably failed to point out as to how the objections filed by the appellant were within limitation.”

 

9. As per sub-section (3) to Section 34 of the Act, an application for setting aside an award is to be made within three months from the date on which a party filing objections under sub-section (1) to Section 34 has received the arbitral award; or, if a request has been made under Section 33, from the date on which that request has been disposed of by the arbitral tribunal. However, the proviso states that the court may condone delay of a period up to thirty days in filing of the objections if it is satisfied that the applicant is prevented by sufficient cause from making an application under Section 34(1) of the Act.

 

10. In the present case, it is an accepted position that the application for setting aside of the award dated 20th December 2013 was made on 28th March 2014 accompanied by an application for condonation of delay. The court, therefore, had the power to condone the eight days’ delay, which was less than thirty days, in terms of the proviso to sub-section (3) to Section 34 of the Act. In the application seeking condonation of delay, it was inter alia stated that after receiving a copy of the award at about 6:50 p.m. on 20th March 2014, the appellant had engaged an empanelled advocate and the records pertaining to the arbitration case were constructed and examined. The short delay had also occurred as sanctions and approvals were required from the higher/competent authority. 

 

11. Given the aforesaid background and the short condonable delay which had occurred, we do not think that the High Court and the Additional District Judge, Karnal were justified in refusing to condone the delay. The application for condonation of delay in filing of the objections should have been allowed.  

 

12. Learned counsel for the respondent, however, contends that the Additional District Judge, Karnal had also dismissed the objections on merits. We have considered this contention but observe that the observation and findings recorded by the Additional District Judge are cryptic and perfunctory. The same is equally true of the reasoning given by the High Court in the impugned order, which is full of generalisation and does not deal with specific issues and contentions raised by the appellant in the objections. In particular, the objection that the claims of the respondent were barred by limitation. 

 

13. Sub-section (1) to Section 43 of the Act states that the Limitation Act, 1963 shall apply to arbitrations as it applies to the proceedings in court. Sub-section (2) to Section 43 states that for the purpose of Section 43 and Limitation Act, an arbitration shall be deemed to have commenced on the date referred to in Section 21 of the Act.1 In the context of the present case, several issues would arise for consideration, including the date on which the respondent had invoked the arbitration clause, and whether there was delay thereafter in filing the application under Section 11(6) of the Act, the legal effect and consequences of the delay, the effect of the order dated 19th October 2012, etc.(For the purpose of this decision, we need not refer to sub-section (3) to Section 43 of the Act, which provision, if relied, can be examined.) 

 

14. Sub-section (2)(a) to Section 34 of the Act inserted with effect from 23rd October 2015 states that the arbitral award may be set aside by the court if the court finds the award is vitiated by patent illegality appearing on the face of the award. The proviso stipulates that the award shall not be set aside merely on the ground of erroneous application of law or by misappreciation of evidence. An award can also be set aside under sub-clause (ii) to clause (b) of Section 34(2) on the ground that it is in conflict with the public policy of India, which expression has been explained in the Explanation(s) to the said Section. 

 

15. We have briefly noted the provisions of the Act only to highlight that the objections under Section 34 of the Act did require consideration and in-depth examination and should not have been dismissed without proper and full application of mind with reference to the provisions of the Limitation Act and the Act. 

 

16. In these circumstances, and for the reasons stated, we have no option but to allow the present appeal and set aside the impugned order dated 11th December 2019 passed by the High Court as well as the order dated 8th January 2018 passed by the Additional District Judge, Karnal. 

 

17. We would remit the matter to the file of the Additional District Judge, Karnal, who would hear the objections afresh and on merits without being influenced by the earlier orders and also the present order. We clarify that the observations made in this order are for the disposal of the present appeal and would not be treated as observations that are binding on the Additional District Judge, Karnal, when he examines and decides the objections under Section 34 of the Act on merits. 

 

18. The appeal is allowed in the above terms with no order as to costs 

 

                                                  Case Laws : 

 

1. Uttarakhand Purv Sainik Kalyan Nigam Ltd. Vs. Northern Coal Field Ltd.

 

Relying on the doctrine of kompetenz – kompetenz enshrined in Section 16 of the Arbitration & Conciliation Act, 1996 (Arbitration Act) and the legislative intent to restrict judicial intervention at pre-reference stage, the Supreme Court held that the issue of limitation would be decided by an arbitrator.

 

It also reaffirmed that the legislative intent of the Arbitration Act is party autonomy and minimal judicial interference in the arbitration process. It observed that the regime of the Arbitration Act outlines that once an arbitrator has been appointed, all objections and issues are to be decided by the arbitrator.

 

The Supreme Court observed that the issue of limitation is a jurisdictional issue which should be decided by the arbitrator in terms of Section 16 of the Arbitration Act and not before the High Court at the pre-reference stage under Section 11 of the Arbitration Act. The Supreme Court observed that once the arbitration agreement is not in dispute, all issue including jurisdictional issues are to be decided by the arbitrator.

 

Full Document :

 

https://viamediationcentre.org/readnews/OTYy/Uttarakhand-Purv-Sainik-Kalyan-Nigam-v-Northern-Coal-Field-Ltd

 

 

 

2. Hindustan Construction Company Limited & Anr. Vs. Union of India & Ors.

 

A three (3) member bench of the Hon'ble Supreme Court comprising of Hon'ble Mr. Justice R.F. Nariman, Hon'ble Mr. Justice Surya Kant and Hon'ble Mr. Justice V. Ramasubramanium (Bench) has struck down Section 873 of the Arbitration & Conciliation Act, 1996 (Arbitration Act) as being "manifestly arbitrary" in terms of Article 14 of the Constitution of India.

 

The Bench observed that Section 87 of the Arbitration Act is against the intent of the Arbitration and Conciliation (Amendment) Act, 2015 (2015 Amendment) and further nullifies the ratio laid down in the recent judgment of Board of Control for Cricket in India Vs. Kochi Cricket Pvt. Ltd.4, wherein it was observed that the intent and purport of Section 87 is contrary to the overall scheme of the Arbitration Act and the 2015 Amendment.

 

Accordingly, Section 26 of the 2015 Amendment was revived by the Supreme Court and the decision rendered in Board of Control for Cricket in India Vs. Kochi Cricket Pvt. Ltd. continues to apply as the guiding principle for determining the applicability of the 2015 Amendment.

 

Full Document :

 

https://www.mondaq.com/india/trials-appeals-compensation/882124/hindustan-construction-company-limited-and-anr-v-union-of-india-and-ors

 

 

 

3. The Oriental Insurance Co. Ltd. and Ors. Vs. Dicitex Furnishing Ltd.

 

The Supreme Court held that an arbitration clause can be invoked by an aggrieved party pursuant to execution of no objection certificates or discharge vouchers.

          

The Supreme Court while upholding the concept of economic duress dealt in the case of Associated Construction Vs. Pawanhans Helicopters Ltd6 and National Insurance Co. Ltd. Vs. Boghara Polyfab Pvt. Ltd.7 observed that a court which is required to ensure that an arbitrable dispute exists, has to be prima facie convinced about the genuineness or credibility of the plea of coercion; it cannot be too particular about the nature of the plea, which necessarily has to be made and established in the substantive proceeding. If the court were to take a contrary approach and minutely examine the plea and judge its credibility or reasonableness, there would be a danger of its denying a forum to the applicant altogether, because rejection of the application would render the finding (about the finality of the discharge and its effect as satisfaction) final, thus, precluding the applicant of its right event to approach a civil court.

 

Full Document : 

 

https://viamediationcentre.org/readnews/MTEyNQ==/The-Oriental-Insurance-Co-Ltd-and-Ors-v-Dicitex-Furnishing-Ltd-Analysis

 

 

 

4. Rashid Raza Vs. Sadaf Akhtar

 

A three (3) member bench of the Hon'ble Supreme Court comprising of Hon'ble Mr. Justice Rohinton Fali Nariman, Hon'ble Mr. Justice R. Subhash Reddy and Hon'ble Mr. Justice Surya Kant (Bench) held that mere "simple allegations" of fraud will not vitiate the effect of arbitration agreement.

 

The Bench, while relying on the earlier judgment of A. Ayyasamy v. A. Paramasivam and Others9 scrutinized the facts of the instant case on the following two tests:

 

1) does this plea permeate the entire contract and above all, the agreement of arbitration, rendering it void, or;

 

2) whether the allegations of fraud touch upon the internal affairs of the parties inter se having no implication in the public domain.

 

The Bench also clarified that the principle of law laid down in A. Ayyasamy v. A. Paramasivam and Others is captured in paragraph 25 of the said judgment.

 

Full Document : 

 

https://main.sci.gov.in/supremecourt/2019/4489/4489_2019_5_2_16554_Judgement_04-Sep-2019.pdf