Delhi HC Upholds Limited Judicial Interference In Arbitral Awards, Dismisses S.34 Plea Challenging Award Of ₹77.96 Crore In Telecom Dispute

The court reiterated that the mandate under Section 34 is to respect the finality of the arbitral award and the party autonomy to get their dispute adjudicated by an alternative forum. It observed that construction of the terms of a contract is primarily for an Arbitrator to decide unless the Arbitrator construes the contract in such a way that it could be said to be something that no fair-minded or reasonable person could do.

The court reiterated the following principles:

• The court, while hearing the challenge of an award under Section 34 of the A&C Act, does not sit in appeal over the award.
• The arbitrator is the final arbiter of the facts.
• The court cannot reappreciate the evidence or reinterpret contracts.
• The court cannot substitute its own view with the view taken by the arbitrator if the view is reasonable and plausible.
• The real test while deciding the petition under section 34 of the A&C Act is that if the court finds the award to be based on no evidence, patently illegal, irrational, or irrelevant factors, then only should the court interfere.
• Under the concept of 'patent illegality,' interference can only occur if there is a contravention of substantive law, failure to provide reasons, or misinterpretation of contractual terms.

Brief Facts:

Essar Commvision Limited (predecessor-in-interest of the petitioner) was awarded a BSO license in 1997 for the Punjab service area. This license was later converted to a Unified Access Service License (UASL). Various Master Service Agreements (MSAs) were executed between the Petitioner and other parties, including Respondent No. 1 (ATC Telecom), to providing telecom infrastructure facilities and services to Quadrant, a telecom operator in Punjab.

In 2015, Quadrant Televntures Limited (Petitioner) requested the Department of Telecommunications (DoT) to allow it to use the GSM spectrum for a period of twenty years from the date of allocation of GSM spectrum. DoT refused to allow the use of GSM spectrum for the period. Aggrieved, the Petitioner filed a petition before the Telecom Disputes Settlement and Appellate Tribunal (TDSAT), challenging the refusal to extend the license.

On 2.01.2017, the Petitioner informed Respondent No. 1 of the closure of its GSM services. Respondent No. 1 raised claims regarding unpaid invoices and an exit penalty. The Petitioner made a payment of ₹2.52 crore. Respondent No. 1 acknowledged it as the full and final settlement for all services rendered.

On 6.09.2017, Respondent No. 1 filed a petition under Section 11 of the Arbitration & Conciliation Act. A Sole Arbitrator was appointed to resolve the dispute. On 25.05.2019, the Sole Arbitrator passed an award in favour of ATC Telecom, directing the Petitioner to pay ₹19.85 crore for unpaid invoices and ₹58.11 crore as exit penalties with interest. The Arbitrator held that the dispute was commercial in nature, arising from private agreements, and did not involve regulatory or statutory issues that required adjudication by the TDSAT.

The arbitrator found Quadrant liable for both the unpaid invoices and the exit penalties. The Arbitrator dismissed the Petitioner's counterclaims and jurisdictional objections. The impugned award directed the Petitioner to pay a total of ₹77.96 crore for the Petitioner's failure to meet its financial obligations.

The petition was filed under Section 34 of the Arbitration and Conciliation Act, 1996, challenging the arbitral award dated 25.05.2019, which allowed Respondent No. 1's claims and rejected the Petitioner's counter-claims.

Contentions:

Petitioner's Contentions:

Sh. Akhil Sibal, Senior Counsel for the Petitioner submitted that the arbitrator lacked jurisdiction to adjudicate the dispute as the exclusive forum for such matters is the TDSAT. The dispute arose under the telecom licensing framework regulated by the Telecom Regulatory Authority of India (TRAI) Act, 1997. Per Sections 14 and 15 of the Act, TDSAT has exclusive jurisdiction over disputes between telecom service providers and infrastructure providers.

He further submitted that the petitioner had settled all outstanding dues with ATC for ₹2.52 crore, and ATC had acknowledged this payment. The arbitrator erred in accepting ATC's claims of ₹19.85 crore for unpaid invoices, as there was no substantiated evidence to support these claims. ATC's invoices were argued to be inflated and unsupported by proper documentation. Clause 6.1 of the MSA outlined the process for settlement of invoices, and no further claims were made by ATC after the full and final payment.

The penalties imposed for prematurely vacating telecom sites before the expiry of the lock-in period were challenged. The termination of services was forced by the DoT's refusal to extend the petitioner's UASL license, a regulatory decision beyond the petitioner's control. The agreements exempted penalties in cases of termination caused by regulatory actions. Clause 10.6.2 of the MSA provided for exemption from penalties in cases of force majeure or regulatory actions, which was misinterpreted by the arbitrator. The DoT's refusal to extend the UASL license constituted a force majeure event, and thus, the exit penalties were unjustified. Petitioner's counsel relied on ONGC v. SAW Pipes Ltd. (2003) 5 SCC 705 to argue that penalties must be genuine pre-estimates of loss and not punitive.

The arbitral award was claimed to be against public policy as it ignored principles of natural justice. Evidence, including correspondences and payments were not given adequate weight by the arbitrator. The award was alleged to be based on a perverse appreciation of facts. The counsel referred to Ssangyong Engineering & Construction Co. Ltd. v. NHAI (2019) 15 SCC 131 to assert that an arbitral award should be set aside for jurisdictional errors or violation of public policy.

Respondent's Contentions:

Mr. Raj Shekhar Rao, Senior Counsel for Respondent No. 1 submitted that it is well-established law that the interpretation of contracts falls within the exclusive domain of the arbitrator and hence the supervising court cannot interfere with that interpretation. It was submitted that section 34 of the Arbitration Act does not contemplate 'misinterpretation of contract' as a ground for challenging an arbitral award.

Reliance was also placed upon Dyna Technologies (P) Ltd. v. Crompton Greaves Ltd. (2019) 20 SCC), where the court held it was held that Arbitral awards should not be interfered with in a casual and cavalier manner unless the Court comes to a conclusion that the perversity of the award goes to the root of the matter. Further, reliance was placed upon Associate Builders v. DDA (2015) 3 SCC 49, where it was held that the court can only intervene in an arbitral award if it is found to be arbitrary or grossly unjust. It was also held that courts must defer to the arbitrator's interpretation unless it is clearly irrational or shocks the conscience.

Reliance was also placed upon Ssangyong Engineering to contend that an arbitral award should not be interfered with merely because an alternative view is possible. It was also submitted that the court cannot act as an appellate body or review the factual merits of a dispute in a section 34 petition.

The counsel also relied upon ONGC vs. SAW Pipes (2003) 5 SCC 705 and Construction and Design Services vs. DDA, (2015) 14 SCC 263 to contend that in certain contracts loss may be presumed even without proof.

Observations:

The court observed that under section 35(2)(a), an award can be set aside only if the petitioner establishes that the parties were incapacitated, that the arbitration agreement was invalid, that he was not given proper notice of the appointment of an arbitrator or the arbitral proceeding, or that he was otherwise unable to present his case or if the dispute is not contemplated within the terms of the submissions to arbitration.

Further, it was observed that an award can also be set aside it conflict with the public policy of India. An award is in conflict with the public policy of India only if the making of the award was induced or affected by fraud or corruption or was in violation of section 75 or Section 81 of the A&C Act or it is in contravention of the fundamental policy of Indian law. The test as to whether there is a contravention of the fundamental policy shall not entail a review on the merits of the dispute.

The court stated that section 34(2)(a) of the A&C Act provides that an award in domestic arbitration can also be set aside if the court finds that the award is vitiated by patent illegality appearing on the face of the record. Thus, the grounds available for challenging and setting aside the award are limited.

The court stated that section 5 of the A&C Act provides that the judicial intervention should be minimal. The legislature intends to minimise the supervisory role of the courts. The court held that it is no longer res integra that while dealing with the objections under Section 34, a court does not sit in appeal over the arbitral award.

The court referred to ONGC Ltd. vs. Saw Pipes Ltd., where it was held that the award would be set aside if it is contrary to fundamental policy of Indian law, or interest of India or if it is patently illegal. Illegality must go to the root of the matter.

In K. Sugumar v. Hindustan Petroleum Corporation Ltd. (2020) 12 SCC 539, it was observed that the highly constricted power of the civil court to interfere with an arbitral award should be restricted to the bare minimum. It was held that interference will be justified only in cases of commission of misconduct by the arbitrator, including exercise of legal perversity.

The court reiterated that the mandate under Section 34 is to respect the finality of the arbitral award and the party autonomy to get their dispute adjudicated by an alternative forum.

With regard to the interpretation of the contract, the court referred to Parsa Kente Collieries Limited v. Rajasthan Rajya Vidyut Utpadan Nigam Limited AIR 2019 SC 2908, where it was held that an Arbitral Tribunal must decide in accordance with the terms of the contract but if a term of the contract has been construed in a reasonable manner, then the award ought not to be set aside on the ground there could be any other interpretation.

The court observed that construction of the terms of a contract is primarily for an Arbitrator to decide unless the Arbitrator construes the contract in such a way that it could be said to be something that no fair-minded or reasonable person could do.

The court went on to refer to other cases. In Konkan Railway Corpn. Ltd v. Chenab Bridge Project (2023) 9 SCC 85 it was inter-alia held that the focus under Section 34 is limited to checking if the arbitral tribunal's view is perverse or arbitrary, not to reinterpret contracts.

In Parsa Kente Collieries Limited, it was held that errors of fact cannot be corrected by the court while exercising the jurisdiction under Section 34 of the A&C Act as it does not sit in appeal over the award.

In South East Asia Marine Engg. & Constructions Ltd. [SEAMAC Limited] v. Oil India Ltd. AIR 2020 SC 2323, it was inter alia held that the courts should not interfere with an award merely because an alternative view on facts and interpretation of the contract exists.

In UHL Power Company Ltd. Vs State of Himachal Pradesh 2022 INSC 202, it was held that if the view taken by the arbitrator regarding the interpretation of the relevant clauses is both possible and plausible, then merely because another view could have been taken, it can hardly be a ground to interfere with the Arbitral award.

After considering the conspectus of cases, the court reiterated the following principles:

• The court while hearing the challenge of an award under Section 34 of the A&C Act does not sit in appeal over the award.
• The arbitrator is considered to be the final arbiter of the facts.
• The court cannot reappreciate the evidence led before the trial court.
• The court also cannot substitute its own view with the view taken by the arbitrator if the view taken by the arbitral tribunal is reasonable and plausible.
• The award is only required to have passed the test of being in sync with 'the public policy of India,' which now includes the 'fundamental policy of Indian Law,' and 'justice and morality.
• The interpretation of a contract falls within the domain of the arbitrator, and such an interpretation can only be set aside if such is patently illegal or perverse.
• In commercial contracts between the parties, the court should not interfere unless any finding of the learned arbitrator is excessive.
• The findings based on facts and evidence cannot be disturbed under section 34 of the Act.
• The real test while deciding the petition under section 34 of the A&C Act is that if on perusal of the impugned award the court finds that it has been passed on no evidence or is patently illegal or it is irrational or irrelevant factor has been taken into account, while ignoring vital evidence, only then the court should interfere into the award.
• Under the concept of 'patent illegality', the interference can be made only if there is a contravention of substantive law, failure to provide reason for the award and misinterpretation of contractual terms.
• The court has to only see whether the interpretation as arrived by the arbitrator could be arrived by any prudent person or is not perverse.
• The court does not have power to review or reappreciate the factual matrix of the case or correctness of the interpretation of the terms of the contract between the parties.

The court held that in order to see whether the tribunal has not violated any of the conditions mentioned above, it is necessary to examine the impugned award.

The court held that the award was based on a judicial approach, fairness, reasonableness, and objectivity and that the award did not warrant interference. Therefore, it dismissed the petition.

Case Title: QUADRANT TELEVENTURES LIMITED vs. ATC TELECOM INFRASTRUCTURE PVT. LTD. & ANR.

Case Number: O.M.P. (COMM) 396/2019, I.A. 13233/2019, I.A. 19283/2022

For the Petitioner: Mr. Akhil Sibal, Sr. Adv. with Mr. Yashvardhan, Mr. Nikhil Y. Chawla, Mr. Gyanendra Shukla, Ms. Kritika Nagpal, Mr. Pranav Das, Advs.

For the Respondents: Mr. Rajshekhar Rao, Sr. Adv. with Mr. Manish Jha, Ms. Shalini Sati Prasad, Mr. Zain Maqbool, Ms. Mehrunissa Anand, Mr. Arsh Rampal, Advs. for R-1.

Date of Judgment: 24.12.2024