Award Must Not Be Set Aside On Ground Of Mere Erroneous Application Of Law Unless Patent Illegality Is Established U/S 34: Madras HC

Brief Facts

This is an Appeal under Section 37 of the Arbitration and Conciliation Act, 1996, (hereinafter 'the Act') against the order dated 21.07.2023 passed by the learned Single Judge of this Court in O.P.No.595 of 2019, whereby the application preferred by the respondent herein under Section 34 of the Act for setting aside the award dated 20.02.2019 of the Sole Arbitrator was allowed.

The present dispute arises out of a Memorandum of Understanding dated 18.05.2006 entered between the appellant and respondent for purchasing immovable properties measuring about 200 acres at Moosivakkam Village, Kancheepuram. As per the terms of agreement the appellant paid a sum of Rs.50,00,000/- as advance and thereafter, made payments on various dates to the respondent for the said purpose. Since the respondent failed to comply with the terms of agreement, the appellant initiated Arbitral proceeding.

The Sole Arbitrator after hearing the respective parties pronounced the award dated 20.02.2019 directing the respondent to pay a sum of Rs.6,48,35,500/- with interest at the rate of 9% per annum from 27.04.2012 till the date of award and in the event of the said amount not being paid within a period of two months from the date of award, the respondent was directed to pay interest at the rate of 18% per annum on the sum of Rs.6,48,35,500/- from the date of award till the date of realization.

Aggrieved against the award dated 20.02.2019 of the learned Sole Arbitrator, the respondent herein preferred an application under Section 34 of the Act before the Commercial Division of this Court. The learned Single Judge in the order dated 21.07.2023 in O.P.No.595 of 2019 has set aside the Arbitral award.

Contentions

The appellant submitted that the award passed by the sole Arbitrator on 20.02.2019, needs no interference as the scope under Section 34 of the Act is limited and it cannot in any manner whatsoever be akin to the Appellate Jurisdiction against the orders of the Trial Courts.

That the learned Arbitrator has passed the award on a detailed scrutiny of facts, appreciating the evidence and in the context of the contemporary legal situation, which is not in contravention to the settled position of law or the principles of interpretation/appreciation of evidence. Therefore, the challenge to the Arbitral award is impermissible.

Per contra, the respondent submitted that the learned Arbitrator has completely misread the documents available on record and travelled beyond the scope of reference. The claims are ex facie time barred and would not be covered under Section 25 (3) of the Indian Contract Act.That in view of Sections 34 (2-A) and 34 (2) (b) (ii) of the Arbitration and Conciliation Act, 1996 the award is vitiated by ''patent illegality'' appearing on the face of the award based upon no evidence or perverse finding.

Court's Analysis

The court, at the outset, addressed the first contention with respect to whether the claim was time barred and referred to section 25(3) of the Indian Contract Act.

The court observed that under Section 25(3) a debtor can enter into an agreement in writing to pay the whole or part of a debt, which the creditor might have enforced but for the law of limitation, and suit can lie on a written promise to pay the barred debt as it is a valid contract. The reason for this provision is that the debt is not extinguished; only the remedy gets barred by passage of time, and this provision does not revive a dead right but merely resuscitates the remedy to enforce the right, which already exists.

The court further examined whether the promise to pay under section 25 needs to be expressed or an implied promise is sufficient. The court observed that section 9 of the Indian Contract Act provides that if the proposal of acceptance is made in words, the promise is said to be express but under other circumstances it remains an implied promise.

The court further noted that thus implied promise is not unknown under the Indian Contract Act. Therefore, the word 'promise' defined in Sections 2(b) besides 9 of the Indian Contract Act are kept in mind, an admission could be 'express' or 'implied', 'promise' covered by Section 25 (3) of the Indian Contract Act need not be 'express'.

The court further discussed the implications of a valid acknowledgement and observed that any acknowledgement of liability is necessarily an admission of the fact that the maker owes money to the creditor. The only corollary of such an acknowledgement is that the same is payable and that the person making the acknowledgement would pay such amount or else there would be no requirement of making any such acknowledgement.

Based on the above discussion, the court agreed with the findings of the arbitrator and observed that the learned Arbitrator has categorically observed that the contents of the aforesaid documents are nothing short of an acknowledgement of the dues as also a promise to pay.

The court further observed that the learned Arbitrator has passed the award on a detailed scrutiny of facts appreciating the evidence and in the context of the contemporary legal situation which is not obnoxious to the settled position of law or the principles of interpretation/appreciation of evidence.

The court further referred to the Supreme Court judgment in Lata Construction & Ors. Vs. Dr.Rameshchandra Ramniklal Shah (2000) wherein it was held that under section 62 of the Contract Act, novation requires complete substitute of new contract in place of new contract and only under the condition that the original contract is not fulfilled. The new replacement contract will cancel or completely modify the terms of the original contract.

Based on the above, the court in the present case observed that neither the terms of original contract was cancelled nor modified. The promise under Ex.C.8 only resuscitates the remedy to enforce the right, which already existed under the original contract. Therefore, the contention of the learned counsel for the respondent that the promise under Ex.C.8 amounts to novation of contract and that the Arbitration Clause under the MOU cannot be invoked is unsustainable.

The court concluded that the respondent herein has miserably failed to show any patent illegality in the Arbitral award warranting interference by the learned Single Judge under Section 34 application. More so, when the scope of interference under Section 34 is limited and within the contours of the ground specified under Section 34 of the Act. To put it otherwise, the award is not required to be set aside on the ground of mere erroneous application of law or by reappreciation of the evidence until and unless it suffers from patent illegality.

Accordingly, the present appeal was allowed and the impugned order was set aside.

Case Title: N.Jayamurugan Vs. M/s.Saravana Global Holdings Ltd.

Citation: 2024 LiveLaw (Mad) 423

Case Reference: O.S.A.(CAD).No.142 of 2023

Judgment Date: 30/10/2024

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