Directions For Refund Of Consideration With Interest Must Be Considered Based On Conduct Of Parties During Arbitral Proceedings: Calcutta HC
The Calcutta High Court has held that in arbitral proceedings, the direction for refund of the deposited consideration amount with interest has to be considered in the background of the conduct of the parties and their admissions during the proceedings.A division bench of Justices Soumen Sen and Biswaroop Chowdury held:The learned arbitrator rejected the claim for specific performance of...
The Calcutta High Court has held that in arbitral proceedings, the direction for refund of the deposited consideration amount with interest has to be considered in the background of the conduct of the parties and their admissions during the proceedings.
A division bench of Justices Soumen Sen and Biswaroop Chowdury held:
The learned arbitrator rejected the claim for specific performance of the contract as claimed by the present appellants. However, the appellants were directed to refund the sum of Rs.19.90 crores (approximately) which was admittedly received by the appellants from the claimants towards consideration. Interest was also granted on the same...The direction for refund of the amount with interest has to be considered in the background of the conduct of the parties and their admissions in the proceeding. The proceeding before an arbitrator is not a proceeding before a court of law. An element of informality is attached to such proceeding and the views of the arbitrator as appear from the award is required to be considered in the said perspective and keeping in mind the immunity that an award enjoys under the Act.
Background
The appeal and the cross-appeal are arising out of a composite order dated 4th September, 2024 disposing of two applications for setting aside of arbitral awards on grounds stated therein under Section 34 of the Arbitration and Conciliation Act.
The dispute is arising out of a Share Purchase Agreement (SPA) dated 24th March, 2021 entered into between the parties. The appellants in APOT No.328 of 2024 were the respondents in the arbitration proceeding and also in the proceeding for setting aside of the award initiated by the present appellants in AP-COM No.388 of 2024 (Old case No. AP 777 of 2023) (Deepak Bhargava & Ors. v. Jagrati Trade Services Pvt. Ltd. & Ors.)
The respondent No.1 in the said arbitration proceeding claimed specific performance of contract along with damages for the breach of the contract whereas the appellants by way of counterclaim prayed for specific performance of their version of the self-same agreement.
The aforesaid counterclaim was dismissed and had also resulted in an application for setting aside of the award limited to the refusal of the claim for interest from the date of payment of consideration till the date of commencement of the arbitration proceeding.
The arbitrator allowed interest @ 9 per cent per annum from the date of filing of the statement of claim till realisation. The arbitrator rejected the claim for specific performance of the contract as claimed by the present appellants. However, the appellants were directed to refund the sum of Rs.19.90 crores (approximately) which was admittedly received by the appellants from the claimants towards consideration. Interest was also granted on the same. The Single Judge has upheld the award and dismissed both the applications. This order is now under challenge by both the parties.
The respondent No.1 only paid Rs.19.92 Crores out of Rs.29.52 Crores and alleged to have breached its payment obligations. A substantial part of the share consideration of the respondent No. 1 was claimed to have been paid by Tirupati Vancom Private Ltd.: Rs. 4.73 Cr. to the Company and Rs.1.84 Cr. to individual shareholders of the company. It is further alleged that Goldsmith Infrabuild Private Ltd. had paid Rs.69 lakhs to the individual shareholders of Deepak.
Disputes and differences arose between the parties in view of the non-payment of the balance consideration by Jagrati along with other consequential breaches. An attempt was made by Jagrati to obtain an injunction against the shares which failed vide the refusal of an order of injunction by an order dated 18th June, 2018 and thereafter disputes were referred to arbitration, wherein the arbitrator rejected the plea for specific performance.
Court's analysis
Court noted that the essential dispute is with regard to refund of the consideration amount with interest. While Deepak have assailed the award as a whole, the limited ground of challenge to the award by the cross appellants are in respect of the period for which interest was not granted that is to say, prior to the filing of the statement of claim.
Relying upon Supreme Court judgements, it was held that when parties have chosen to avail an alternate mechanism for dispute resolution, they must be left to reconcile themselves to the wisdom of the decision of the arbitrator and the role of the court should be restricted to the bare minimum.
It was held that the reasonableness of the decision of the arbitrator cannot be a matter of judicial review in deciding an application for setting aside and award.
An erroneous application of the law by itself is not a ground to challenge an award under Section 34 of the Arbitration and Conciliation Act. For an award to be set aside there must be a patent illegality, an error which goes to the very root of the matter and affects the jurisdiction of the arbitrator in deciding a dispute. If the arbitrator lacks the authority to decide the dispute the award is a nullity. If the disputes are by nature non-arbitrable the assumption of jurisdiction would be an illegality, the court said.
In terms of the dispute, the court observed that there has been a clear representation by Deepak in course of arbitration and also in subsequent proceedings wherever the issue of refund of the consideration amount came up for consideration and they had agreed to refund the said amount.
It was held that having regard to the conduct of the parties during the arbitration proceeding and subsequent thereto it is not possible for the court to go to a conclusion that the award is patently illegal or against the public policy of India.
It was said that in order to succeed on the ground of patent illegality, it has to be established that the award was passed in contravention of the substantive law of India, contravention of the 1996 Act and contravention of the terms of the contract or that it shocks the conscience of the court.
In terms of Section 34(2)(b)(ii) an arbitral award can be interfered with only when the findings of the arbitrator are found to be arbitrary, capricious or perverse or when the conscience of the court is shocked or when the illegality goes to the root of the matter. A possible view passed on facts does not call for any interference, the bench said.
"The tribunal having held that the Deepak is liable to refund the entire consideration amount despite no relief specifically included in that regard in the Statement of Claim there cannot be any justifiable reason to hold that only the interest component can be segregated and the cause of action held to have arisen with the award. Once there is a clear finding that the claimant is entitled to refund of the principal amount interest becomes a necessary corollary. We completely agree with the finding of the learned Single Judge in this regard. The challenge to the interest component by either side fails when considered in the context of the restricted and limited jurisdiction that the court exercises under Section 34 and 37 of the Arbitration and Conciliation Act, 1996. The scope of investigation is extremely myopic and only confined to the grounds mentioned in the said section," the bench concluded.
Accordingly, the challenge was dismissed, but upon a prayer by the counsel for the appellant in AO-COM/38/2024, the execution proceeding was stayed for a period of four weeks from the date of the order.
Case: DEEPAK BHARGAVA & ORS. VS. JAGRATI TRADE SERVICES PVT. LTD. & ORS.
Case No: AP-COM/388/2024
