Merit Based Review Of Arbitral Award Is Impermissible Under Section 37 Of Arbitration Act: Delhi High Court

Brief Facts

The appellant, Dr. R.N. Gupta Technical Educational Society (hereinafter RNGTE) has filed the present intra-court appeal under Section 37(1)(c) of the Arbitration and Conciliation Act, 1996 (hereinafter the A&C Act) impugning a judgment dated 30.09.2021.

The arbitral proceedings arose in the context of a Composite Agreement for Loan and Guarantee (hereinafter the agreement) entered into between the parties. RNGTE was the borrower under the said agreement whereas Intec Capital Limited (hereinafter Intec) was the lender. In terms of the agreement, Intec agreed to make available a financial facility as referred to in the Schedule 1 of the said agreement. The said schedule also prescribes the rate of interest and the schedule for repayment.

The loan sanction letter on the basis of which the loan was disbursed also contained a condition that a cash collateral of 35% of the loan amount would be given by the borrower.

According to Intec, a sum of ₹1,05,00,000/- was retained by it out of the total loan amount of ₹3,00,00,000/- and a sum of ₹1,95,00,000/- was disbursed to RNGTE.

However, according to RNGTE, it provided a cash amount of ₹1,05,00,000/- to the respondent as cash collateral in terms of the conditions stipulated in the sanction letter. Further, it is the case of RNGTE that instead of releasing a sum of ₹3,00,00,000/-, Intec only released a sum of ₹1,95,00,000/- to RNGTE.

In the impugned award, the learned sole Arbitrator, at the very outset, considered the divergent factual versions given by the parties as regards the alleged cash collateral of ₹1,05,00,000/-. The learned sole Arbitrator, after considering the evidence adduced by the parties and taking note of the attendant facts and circumstances, held that there was no transaction involving payment of cash amount of ₹1,05,00,000/- by RNGTE to Intec.The award also rejects the version of Intec that a sum of ₹1,05,00,000/- was retained from the loan amount.

The impugned judgment, dismissed RNGTE's application under Section 34 of the A&C Act after taking note of the elaborate factual findings rendered in the impugned Arbitral Award.

The impugned judgment finds no infirmity in the reasoning contained in the impugned award. However, the impugned judgment noticed an arithmetical error in the impugned award.Thereafter, the impugned judgment taking note of the submission of the learned counsel for the Intec to the effect that the award be restricted to an amount of ₹72,03,750/- (instead of ₹77,03,950/-) along with applicable interest

Contentions

The appellant submitted that the learned sole Arbitrator has wrongly construed the transaction between the parties. In particular, the learned Arbitrator failed to take into account the receipt dated 31.03.2010 evidencing the payment of cash amount of ₹1,05,00,000/- by the appellant to the respondent.

That it was impermissible for the learned Arbitrator to disregard the terms of the written agreement based on oral evidence inasmuch as the same results in contravention of Section 91 and 92 of the Indian Evidence Act, 1872. Reliance in this regard has been placed on the judgment of the Supreme Court in case of Roop Kumar v. Mohan Thedani (2003).

Per contra, learned counsel for the respondent has relied upon the elaborate factual findings rendered in the impugned award and has emphasised that the said findings rendered could not be reopened in proceedings under Section 34 and/or Section 37 of the A&C Act.

Court's Analysis

The court noted that the Arbitrator after undertaking a threadbare analysis of the material on record and taking note of the elaborate evidence adduced by the parties, comprehensively rejected the contention of the appellant that a sum of ₹1,05,00,000/- was disbursed in cash by the appellant to the respondent as “cash collateral”. It was also found that the actual amount disbursed by the respondent to the appellant was only to the tune of ₹1,95,00,000/- as against an amount of ₹3,00,00,000/- as mentioned in the loan agreement.

Based on the above, the court observed that there is no basis for this Court to take a different view in the matter in these proceedings.

The court noted that in Konkan Railway Corporation Limited Vs. Chenab Bridge Project Undertaking, 2023 the Supreme Court has held that 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.

The contention raised by the appellant as regards infraction of the principles embodied in Section 91 and 92 of the Indian Evidence Act, 1872, is also misconceived. A perusal of the award reveals that the learned Arbitrator has not misconstrued/misapplied or ignored any terms of the agreement arrived at between the parties, the court noted.

The court further noted that the learned Sole Arbitrator has merely taken note of the amount actually exchanged between the parties. It would have been wholly incongruous to ignore the same. If anything, the same would have caused serious detriment to the appellant itself inasmuch as the loan agreement mentioned the loan amount to be ₹3,00,00,000/- and the repayment amount was ₹3,27,29,000/-, whereas in actual fact, the amount that was actually disbursed by the respondent to the appellant was only ₹1,95,00,000/-. The impugned award cannot be faulted for taking cognizance of the actual transaction between the parties, as it took place.

Accordingly, the present appeal was dismissed.

Case Title: Dr. R.N. Gupta Technical Educational Society versus M/s Intec Capital Ltd.

Case Reference: FAO(OS) (COMM) 139/2021, CM APPLs.40566/2021, 55976/2023

Judgment Date: 20/11/2024

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