Court Exercising Powers Under Section 34 Of The A&C Act Cannot Allow Claims Rejected By The Arbitral Tribunal: Delhi High Court

The bench of Justices Suresh Kumar Kait and Neena Bansal Krishna held that Section 34 of the A&C Act does not permit the Court to rewrite an arbitral award and the Court can either set aside or upheld the arbitral award.

The Court also observed that the Court would have the power to partially set aside an arbitral award upon a severable issue, however, it would not be competent to modify the arbitral award by allowing a claim that was disallowed by the arbitral tribunal.

It held that if such a power is recognised as falling within the ambit of Section 34(4) of the Act, then the Court would be acting no different from an appellate court which would be contrary to the legislative intent of the Section 34 of the Act, 1996. The Court shall decline to decide the claim that had been rejected even if wrongly by the learned Arbitrator. It can only set aside a wrongly decided claim and permit the parties to recommence the arbitration on such an issue.

Facts

The case revolves around a License Agreement between Bharti Airtel Ltd. (referred to as the appellant) and Jamshed Khan (referred to as respondent No. 1). The agreement, dated 22.01.2015, granted the appellant a rooftop space in Delhi for nine years, starting with a monthly fee of Rs.15,000/- and a 10% increase every three years.

Disagreements arose when the respondent claimed that the appellant abandoned the agreement by not paying the license fee from 29.01.2015, leading to arbitral proceedings initiated by the respondent. The claim included Rs.4,12,000/- for arrears of license fee and Rs.57,000/- as interest until 12.05.2017.

The appellant contended that hindrances from neighbors and the respondent's failure to provide access to the rooftop prevented the installation of a tower. The agreement was terminated on 23.03.2015, as indicated in a notice.

After evaluating evidence, the arbitrator found the termination notice was served on 02.12.2015. The respondent was granted one year's license fee till termination, but their claim was denied due to misinformation about available rooftop space. The arbitral award faced challenge under Section 34 of the Act, leading to partial set-aside by the District Judge. The judgment allowed payment of Rs.1,80,000/- as license fee along with interest.

Aggrieved thereby, the appellant challenged it under Section 37 of the Act.

Contention of the Parties

The appellant made the following submissions:

• Contended that the District Judge overstepped by rewriting the contract under Section 34 of the Act, 1996, emphasizing that the court should not alter contracts already executed between parties.
• Cited legal precedent, including the cases of Haryana Urban Development Authority v. M/S Mehta Construction Company (2022), Project Director, National Highway Authority of India v. M. Hakeem & Anr. (2021), UHL Power Company Ltd. vs State of Himachal Pradesh and State of Himachal Pradesh vs UHL Company Ltd. (2022), Messrs. Scholastic India Private Limited v. Smt. Kanta Batra (FAO (COMM) 112/2022), to support the limited scope of judicial interference under Section 34 of the Act, 1996.

The respondent made the following counter arguments:

• That the arbitrator's findings were severable and addressed a distinct issue, justifying the partial setting aside of the award.
• That the arbitrator's conclusions were not based on evidence and were made in ignorance of the parties' pleadings, supporting the learned District Judge's decision under Section 34 of the Act, 1996.

Analysis by the Court

The Court observed that at the time when the license agreement was executed between the parties, the subject premises were already leased out by the respondent to a third party. It held that a premise which has already been leased out cannot against be given on license.

The Court held that the arbitrator rightly rejected the claim of the respondent as it was dependant upon the validity of the license agreement and not on the availability of the space at the subject premises. It held that the award did not deserve any interference.

Next, the Court observed that the Ld. District Court not only set aside the finding of the tribunal but also allowed the claim of the respondent. It held that the Court proceeded to re-write the award.

The Court held that the Court exercising powers under Section 34 of the A&C Act cannot allow claims which were disallowed/rejected by the arbitral tribunal.

The Court held that Section 34 of the A&C Act does not permit the Court to rewrite an arbitral award and the Court can either set aside or upheld the arbitral award.

The Court also observed that the Court would have the power to partially set aside an arbitral award upon a severable issue, however, it would not be competent to modify the arbitral award by allowing a claim that was disallowed by the arbitral tribunal.

It held that if such a power is recognised as falling within the ambit of Section 34(4) of the Act, then the Court would be acting no different from an appellate court which would be contrary to the legislative intent of the Section 34 of the Act, 1996. The Court shall decline to decide the claim that had been rejected even if wrongly by the learned Arbitrator. It can only set aside a wrongly decided claim and permit the parties to recommence the arbitration on such an issue.

It concluded as “it is observed that the learned District Judge (Commercial Court) should have passed a decree for fresh arbitration proceedings to be instituted when it partially set aside the award instead of practically re-writing the Award itself.”

Accordingly, the Court set aside the impugned order and upheld the arbitral award.

Case Title: Bharti Airtel v. Jamshed Khan

Citation: 2023 LiveLaw (Del) 1113

Date: 8.11.2023

Counsel for the Appellant: Mr. Urfee Haider

Counsel for the Respondents: Mr. Karan Luthra and Mr. Naman Gowda

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