Court U/S 34 Of Arbitration Act Cannot Substitute Own Views Or Views Of Parties With View Taken By Arbitral Tribunal: Delhi Court

Brief Facts

A Memorandum of Understanding (MOU) was signed between Naresh Kumar Sharma (Petitioner) and Innovation Impex Pvt Ltd (Respondent) on March 28, 2015. In the MOU, an immovable property was sold for consideration of Rs. 490 crores. The respondent paid 1 crore as a part payment towards the sale. The transaction had to be completed by August 14, 2015. In the clause Q of the MOU, it was clearly specified that the respondent had a right to inspect the property after the payment of 125 crores.

However, the remaining payment was not made. In addition to that, communications between the parties stopped from June, 2015 to October, 2015. Thereafter, the respondent demanded its amount of Rs. 1 crores back on December 18, 2015. Subsequently, the respondent proposed a name of an arbitrator. The respondent filed its claims before the arbitrator after the arbitration proceedings had begun. A counter claim was filed by the petitioner which was dismissed due to non-payment of tribunal fees.

Contentions

The petitioner contended that the respondent breached the terms of the MOU as the payment of 125 crores was not made before inspecting the property. It was further argued that two months extension was allowed by the MOU but it was not sought by the respondent. It was further submitted that cross examination of the respondent's witnesses could not be conducted on November 27, 2017 as counsel of the petitioner had died due to heart attack. A cost of Rs. 30,000 was imposed and on top of that the petitioner was not allowed to present its evidence. It was further submitted that since the MOU was not registered, it could not be enforced for claims with respect to the immovable property. It was further argued that the respondent executed the MOU with fraudulent intention and it had no resources to begin with for completing the transactions.

Per contra, the respondent submitted that intention of the petitioner was bad as no response was given to multiple mails sent. It happened because the amount of Rs. 1 crore had already been paid which led to a change in its attitude. It was further argued that no document relating to the property was provided even after asking for the same many times. It was further submitted that arbitrator was right awarding 1 crores along with interest back as there was no forfeiture clause nor the advanced amount paid could be treated as an earnest money. It was further contended that the MOU did not require to be registered under section 17 of the registration act. No title or ownership was transferred through MOU. It was merely an preliminary document towards completion of the transaction. It was further argued that the MOU was voidable under section 65 of the Indian Contract Act as material facts had been concealed including outstanding loans and tax demands.

Court's Analysis

The court agreed with the award passed by the arbitrator. The court further observed that an awards passed by the arbitrator by applying his judicial mind cannot be set aside under section 34 of the Arbitration Act. In the present case, the arbitrator properly analysed the contentions presented by both parties and held that the petitioner failed to dismantle the arguments of the respondent with respect to allegations of misrepresentation and not providing essential documents. The arbitrator further observed that the conduct of the petitioner made the contract voidable as green status of the property and tax burdens were not disclosed. The court observed that a well-reasoned award was passed by the arbitrator which limits the scope of interference under section 34 of the arbitration act.

The court referred to the Supreme Court judgment in Sutlej Construction Ltd. v. State (UT of Chandigarh) (2018) wherein the scope of interference under section 34 was discussed. It was held that when it comes to setting aside of an award under the public policy ground, it would mean that the award should shock the conscience of the Court and would not include what the Court thinks is unjust on the facts of the case seeking to substitute its view for that of the arbitrator to do what it considers to be “justice”.

The court further referred to another judgment of the Supreme Court in 'MMTC Ltd. v. Vedanta Ltd. reported in (2019) wherein it was that as far as Section 34 is concerned, the position is well-settled by now that the Court does not sit in appeal over the arbitral award and may interfere on merits on the limited ground provided under Section 34(2)(b)(ii) i.e. if the award is against the public policy of India. The court further referred to the Supreme Court judgment in the case of Maharashtra State Electricity Distribution Company Ltd. v. Datar C.C.L. Ltd. (2018) it has been held that “the proposition of law that the Arbitral Tribunal is the master of evidence and the findings of fact which are arrived at by the arbitrators on the basis of evidence on record are not to be scrutinised as if the Court was sitting in appeal now stands settled by catena of judgments pronounced by this Court without any exception thereto.”

Conclusion

The court concluded that the arbitrator passed a well-reasoned award which cannot be interfered with under section 34 of the arbitration act. Accordingly, the present petition was not allowed.

Case Title: Naresh Kumar Sharma vs Innovation Impex Pvt Ltd

Court: Commercial Court, Delhi

Case Reference: OMP (COMM) 61/19

Judgment Date: 09/10/2024

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