Though Legal Issue Can Be Raised For First Time In Appeal Proceedings, It Depends On Facts: Allahabad High Court

The Allahabad High Court has held that though a legal issue going to the root of the matter can be raised for the very first time in appellate proceedings but the same is dependent on the facts of the case.

The bench comprising of Chief Justice Arun Bhansali and Justice Vikas Budhwar held

“There is no quarrel to the proposition of law that a legal issue going into the root of the matter can be raised for the very first time in the appellate proceedings. However, the question is dependent upon the facts of a particular case.”

The Court held that since admission is the best piece of evidence and the officer of the appellant, in his cross-examination, had supported the claim the claimant-respondent, without challenge to such statement, no challenge could be made to the arbitral award under Section 34 or Section 37 of the Arbitration and Conciliation Act, 1996.

Factual Background

Before the sole arbitrator, the claimant-respondent claimed to have executed various works for appellant-objector, Gaursons Promoters Pvt. Ltd. Since certain issues arose in the project in 2012-13 and the work was stalled due to agitation by villagers who were the erstwhile owners of the land where project was being carried out.

Claimant-respondent asserted that since extension was granted for completing project by appellant's sister concern, and the work was upto satisfaction, it sought time extension from appellant to execute remaining work.

Once a sole arbitrator was appointed by the High Court, the claimant filed a claim petition praying for award of Rs. 4,23,15,030/- along with Rs. 50Lakhs on account of loss. Appellant filed a counter claim claiming Rs. 4,69,62,127/- from the claimant-respondent. The Arbitrator awarded Rs. 2.5 crores along with 16% interest per annum w.e.f. the 1st April, 2015 till the making of the award and the interest payable thereafter till the date of payment would be at the rate prescribed specified in Section 31(7) (b) of the Act to the claimant-respondent. Further, cost of Rs. 12 lakhs was also awarded to the claimant-respondent.

The challenge to the award by the appellant was rejected by the Presiding Officer, Commercial Court, Gautam Budh Nagar. Thereafter, appellant approached the High Court under Section 37 of the Act.

Counsel for appellant argued that the amount arrived at by the sole arbitrator was not based on any evidence. It was argued that the entire amount was paid, TDS was deducted, and the entire transaction was reflected on the portal of the Income Tax Department. Though this ground was not taken before the Commercial Court, it was argued that being a legal ground showing patent illegality, it went to the root of the matter and could be taken in application under Section 37 of the Act.

Further, it was submitted that by virtue of Section 34 (2A), awards in arbitrations other than International Commercial Arbitrations could be set aside by the Court if the award was “patently illegal”. Lastly, it was argued that even though the appellant had filed an application before the arbitrator seeking production of ledger/books of accounts of the claimant, the same was not allowed. It was submitted that the Arbitrator had awarded in favor of the claimant without deciding the application and looking into its books of accounts of the claimant which led to miscarriage of justice being against the fundamental policy of Indian law.

Counsel for respondent argued that Section 34 is not akin to Appellate Jurisdiction and the Commercial cannot rehear the matter or reappreciate evidence under Section 34. It was argued that there were inconsistencies in the figures cited by the appellant at various stages. Lastly, it was argued that non-disposal of the application was a mere irregularity and not patent illegality to attract Section 34(2A).

Section 34 of the Arbitration and Conciliation Act, 1996 empowers Court to set aside the arbitral award under the conditions mentioned therein. Sub-section (2A) of Section 34 empowers Court to set aside arbitral award where is found to be vitiated with patent illegality appearing on the face of the award.

High Court Verdict

The Court observed that Arbitration and Conciliation Act, 1996 was enacted to provide more accessible, efficient and cost-effective mechanism for dispute resolution. The Court observed that Section 34 has been drafted to limit intervention of Courts in arbitral proceedings and Section 37 further restricted the grounds of challenge to the order passed under Section 34 of the Act.

The Court observed that there was nothing on record to show that the appellant had deducted the statutory TDS. Further, upon perusal of the application under Section 34 and the appeal under Section 37, the Court found that there were inconsistencies in the amounts alleged to have been paid by the appellant.

“In the said background, the Court finds that the appellant/objector is taking inconsistent stand at different stages in the proceedings which does not inspire the confidence of the Court. More so, when figures are not matching and there is no plausible explanation offered by it.”

Appellant claimed that there were discrepancies in the amounts considered by the Arbitrator. To this, the Court observed that the amount had been admitted by the officer of the appellant in his cross-examination. Accordingly, the Court held that minor contradictions in the arbitral award cannot be used to “demolish a case” especially when the same is substantiated by the statements by the party itself.

Further, the Court held that though the burden of proof to prove his case was on the claimant under Section 101 read with Section 102 and Section 114 of the Evidence Act, 1872, the clear admission of fact on behalf of respondent which was never challenged cannot be used to challenge the arbitral award on grounds of patent illegality.

The Court held that the non-disposal of the application seeking production of books of accounts/ ledger of the claimant was irrelevant as the admission of the officer of the appellant during cross examination substantiated the claims of the claimant-respondent. The Court held that since no challenge was ever raised to the statement made in cross-examination having being vitiated by fraud, coercion or misrepresentation, there was no irregularity in not disposing the application.

The Court held that there was no legal issue going to the root of the matter in the present case as “(i) admission is best piece of evidence; (ii) the deposition of the witness, Rohit Sharma on behalf of the appellant-objector which remains intact; (iii) inconsistency in the stand of the appellant-objector which has not been explained; (iv) non-challenge to the quantum awarded to the claimant-respondent under various heads; (v) waving of counter claim; (vi) acceptance of the fact that incentives were paid to the claimant-respondent for the works executed by it and of course; (vii) resiling from the admissions at appellate stage.”

Accordingly, the appeal was dismissed.

Case Title: Gaursons Promoters P. Ltd. vs. Aakash Engineers And Contractors 2024 LiveLaw (AB) 322 [APPEAL UNDER SECTION 37 OF ARBITRATION AND CONCILIATION ACT 1996 No. - 144 of 2023]

Citation: 2024 LiveLaw (AB) 322

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