Arbitrator Taking A Different View Is Not A Ground To Set Aside Award: Telangana High Court
The Telangana High Court bench comprising Justice M.G. Priyadarsini held that the scope of setting aside an arbitral award under Section 34 of the Arbitration and Conciliation Act, 1986 is very limited and can only be set aside if there is an error apparent on the face of the record and there is perversity in the award. Further, it held that the courts should not interfere with the...
The Telangana High Court bench comprising Justice M.G. Priyadarsini held that the scope of setting aside an arbitral award under Section 34 of the Arbitration and Conciliation Act, 1986 is very limited and can only be set aside if there is an error apparent on the face of the record and there is perversity in the award. Further, it held that the courts should not interfere with the arbitral awards merely because a different view has been taken by the arbitrator based on the evidence and that it should be against public policy or public interest.
Brief Facts:
M/S Nile Ltd. (“Petitioner”) entered into an agreement for the supply of lead antimony alloy wire with OFK Ltd. The Petitioner received an order from OFK for the supply of a specific quantity of wire. The Petitioner fulfilled the order by supplying 141,207 kgs of wire. However, despite sending bills, OFK did not make the payment, claiming that the material supplied by the Petitioner was unsuitable for their intended use. The Petitioner disputed this, stating that the material was sent as per specifications and requested payment. However, OFK still refused to make the desired payment. Feeling aggrieved, the Petitioner initiated arbitration proceedings to recover the outstanding payment of Rs. 19,26,868/-.
Shri Gurdip Singh (“Sole Arbitrator”) conducted proceedings and passed an award. The award partially favoured the Petitioner, granting Rs. 2,48,289/- for the material used by OFK but rejected the contention of the Petitioner for the remaining amount of Rs. 16,78,599/-. The Sole Arbitrator rejected the claim of the remaining amount because the Petitioner collected the rejected material back as per the terms of the supply order, and thus, any loss incurred should be borne by the Petitioner.
Aggrieved by the arbitration award, the Petitioner filed an Arbitration Original Petition under Section 34 of the Arbitration Act before the II Additional District Judge (“ADJ”), seeking the entire claimed amount. The ADJ dismissed the petition filed by the Petitioner. Thereafter, the Petitioner filed an appeal before the Telangana High Court (“High Court”) arguing that both the ADJ and the Sole Arbitrator failed to consider their claim properly and requested the full amount claimed.
Observations by the High Court:
The High Court noted that the material supplied by the Petitioner to OFK was intended for the preparation of war (ammunition) material and thus had to meet specific standards. Any deviation from these standards could not be overlooked, especially considering that third parties could not inspect the quality of the material.
Regarding the scope of interfering with the arbitration award, the High Court noted that there is limited scope for interfering with an award under Section 34 of the Arbitration and Conciliation Act, 1986 (“Arbitration Act”). Further, it noted that the expression “public policy” in Section 34 has a wider amplitude and awards passed against the terms of the contract are not in public policy. It referred to the decision of the Supreme Court in NTPC Limited v. Deconar Services Private Limited [2021 SCC OnLine SC 498], where it was held that the courts should not interfere with arbitral awards merely because a different view could be taken based on the evidence. It emphasized that unless there is perversity in the award or an error of law, courts should refrain from intervening. The High Court clarified that showing another reasonable interpretation of the evidence is insufficient grounds for interference.
Therefore, the High Court noted that there was no evidence to hold that there was an error apparent on the face of the record or perversity in the arbitral award. Further, it noted that the grounds raised by the Petitioner primarily pertained to factual disputes rather than questions of law.
The High Court emphasized that contravention of a statute not linked to public policy or public interest cannot be used as a basis to set aside an award. Further, it referred to the decision of the Delhi High Court in Delhi Airport Metro Express Private Limited v. Delhi Metro Rail Corporation Limited [2022 Live Law (SC) 452] and held that the expression 'public policy of India' under Section 34 of Arbitration Act and its connotations for reviewing arbitral awards were elucidated in the 2015 Amendment Act, which stipulates that an award would conflict with public policy only in specific circumstances such as fraud, corruption, violation of statutory provisions, or contravention of fundamental principles of Indian law or morality.
It noted that the Petitioner party did not provide evidence of fraud, corruption, or statutory violations that would warrant setting aside the award. The High Court found no evidence of patent illegality in the record or any irregularity committed by the arbitrator in the passing of the arbitral award. Consequently, it held that the arbitrator thoroughly considered all aspects and evidence before passing the arbitral award. As a result, the appeal was dismissed.
Case Title: M/S Nile Ltd. vs Sri Gurdip Singh and Another
Case Number: Civil Miscellaneous Appeal No. 345 of 2011