Clarification Sought By Arbitrator On Other Matters, Won’t Make Them Subject Of Arbitral Proceedings: Delhi High Court

The bench of Justice Anup Jairam Bhambhani remarked that the letter issued by the Arbitrator, seeking information and clarification as to whether payments were released to the claimant under other contracts, which were not inter-related with the contract under consideration, was neither a direction nor an order made by the Arbitrator, and it was merely an effort to seek clarification on certain matters.

Thus, the High Court set aside the arbitral award, to the extent it awarded the claimant the amount due to it under other contracts, since it fell outside the scope of reference made by the High Court under Section 11 of the Arbitration and Conciliation Act, 1996 (A&C Act).

After certain disputes arose between the petitioner, University of Delhi, and the respondent, M/s Kalra Electricals, under a Work Contract, the respondent invoked the arbitration clause. In a petition filed before the Delhi High Court under Section 11, the Court referred the parties to arbitration.

The petitioner, University of Delhi, filed a petition under Section 34 of the A&C Act before the Delhi High Court against the arbitral award passed in favour of the respondent/ claimant.

The petitioner submitted before the Court that although the Arbitrator recorded a finding that the petitioner had already paid to the respondent/ claimant, Kalra Electricals, the amounts due towards the relevant Work Contract, the Arbitrator, nevertheless, directed the petitioner to clear the dues in respect of the other 44 contracts executed between the parties.

It argued that since the Coordinate Bench, in its order under Section 11, had referred the parties to arbitration only with respect to one contract, i.e., the relevant Work Contract, the Arbitrator had exceeded its jurisdiction by proceeding to deal with the disputes relating to the other contracts.

The University of Delhi averred that disputes arising from the other contracts were neither contemplated in the invocation notice issued by the respondent/ claimant, nor were they part of the High Court’s referral order. Thus, the arbitral award is liable to be set aside under Section 34(2)(a)(iv) of the A&C Act, it pleaded.

As per Section 34(2)(a)(iv), an arbitral award may be set aside by the Court if the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of submission to arbitration.

The respondent, Kalra Electricals, argued that in its statement of claims filed before the Tribunal, the claimant had pleaded that since the dispute was only regarding one contract, and there was no dispute regarding the other 44 contracts, the petitioner be directed to release the payments under the other contracts.

The respondent added that the petitioner had maliciously withheld payment of the admitted amounts payable to the respondent under the other 44 contracts, only because there was a dispute between the parties under the Work Contract. Therefore, as a consequence, the dispute in relation to the other 44 contracts arose from the same work contract. Thus, the Arbitrator acted within his jurisdiction in directing payment of the amounts due under the other contracts, it argued.

The respondent, Kalra Electricals, further pointed out to the Court that, in a letter issued by the Arbitrator seeking certain information and clarification from the petitioner, the Assistant Engineer of the petitioner had informed the Arbitrator that the respondent’s claim for release of balance payment under the other contracts “may be considered by the Arbitrator”.

The Court referred to the Apex Court’s decision in Ssangyong Engineering & Construction Company Ltd vs. National Highways Authority of India (NHAI) (2019), where it was observed that, where reference is made to the arbitrator to decide a specific dispute, as enumerated by the parties, the Court or the appointing authority, the arbitrator's jurisdiction is circumscribed by the specific reference and the arbitrator can decide only those specific disputes. If the arbitrator is alleged to have wandered outside the contract and dealt with matters not allotted to him, this would be a jurisdictional error which could be corrected on the ground of “patent illegality”, the Apex Court had said.

The bench further took note that even though the other contracts were referred to in the invocation notice, and the fact that the petitioner had withheld payment under the other contracts, only because there was a dispute under the work contract, was brought before the Court’s notice, the Court, in its referral order, had consciously referred to arbitration only the dispute under the Work Contract.

The bench further remarked that the letter issued by the petitioner’s Assistant Engineer, did not amount to any ‘consensual reference’ by the parties to the Arbitrator, to decide the claims or disputes arising under the other contracts.

“Furthermore, even in communication dated 30.08.2010 issued by the learned Arbitrator to the petitioner, he had only sought certain information and clarifications as to whether the respondent had executed the work against the other contracts (orders) and whether payments against those contracts had been released. This communication was neither a direction nor an order made by the learned Arbitrator in the pending arbitral proceedings; but was merely an effort on his part to seek clarification on certain matters,” the Court said.

The Court added that seeking such clarification with respect to the other contract would not alone make them the subject of arbitral proceedings. “The record shows that the statement of claim was never amended to include any claims arising from the other 44 contracts, and therefore, the other claims could not have formed subject matter of the adjudicatory process,” the bench held.

The Court concluded, “What falls foul of section 34(2)(a)(iv) however, is the fact that despite finding that the contracts were not inter-related, the learned Arbitrator intertwined the disputes arising from the other contracts and proceeded to decide the same as part of the specific reference made to him by referral order dated 02.06.2010. This is impermissible in law.”

The Court, thus, held that the arbitral award, to the extent it awarded the claimant the amount due to it under the other contracts, fell foul of Section 34(2)(a)(iv) of the A&C Act. The Court thus, partly set-aside the award.

Case Title: University of Delhi versus M/s Kalra Electricals

Citation: 2023 LiveLaw (Del) 146

Counsel for the Petitioner: Ms. Aakanksha Kaul, Advocate with Mr. Aman Sahani, Advocate, Mr. Manek Singh, Advocate and Mr. Harsh Ojha, Advocate

Counsel for the Respondent: Mr. Gaurav Kumar Singh, Advocate

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