A Party Cannot Contest An Arbitral Award For Exceeding The Reference Scope If It Failed To Object When The Alleged Breach Initially Occurred: Delhi High Court

The bench of Justice Dharmesh Sharma held that the tribunal’s decision to include certain invoices in the claim cannot be challenged under Section 34 as being beyond the reference to arbitration when no such objection was raised before the arbitral tribunal.

The Court held that supplies made prior to the date of the agreement would be governed by the arbitration clause in the agreement if the parties made verbal and written modifications to the agreement to include those supplies to settle their running accounts.

Facts

The parties entered into an agreement formalized on 25.02.2012, wherein the claimant, a partnership firm in lighting consultancy, manufacturing, and supply, agreed to provide goods to the appellant. This oral agreement, later documented, covered business transactions from 2012 to 2016. The claimant supplied various goods, and financial dealings were tracked through a running account with intermittent payments.

A dispute arose when the claimant identified an outstanding amount of Rs. 76,58,717 in the running account. Despite requests, the appellant failed to settle the dues. Consequently, the claimant asserted a claim of Rs. 1,21,39,070, inclusive of interest at 18% per annum. The disagreement fell under the arbitration clause in the supply orders, specifying resolution through an arbitrator appointed by the appellant.

Efforts at amicable resolution proved futile, leading the claimant to invoke the arbitration clause. Accordingly, the respondent approached the Court under Section 11 of the Act and the Court appointed the arbitrator. The arbitrator allowed the claims of the respondent.

Subsequently, the appellant challenged the award under Section 34 of the A&C Act. However, the ADJ upheld the award, finding no defects or patent illegality in the arbitration process. Aggrieved thereby, the appellant challenged the order of he ADJ under Section 37 of the A&C Act.

Grounds of Appeal

The appellant made the following submission to challenge the impugned order:

• That the learned Sole Arbitrator exceeded the terms of reference by erroneously determining that certain payments were outstanding for supplies made before 15.02.2012, which were not covered by the arbitration agreement or terms of reference.
• Pointed to the demand notice dated 27.07.2015, highlighting the specific details of each bill, claiming that the first supply was made on 24.09.2012 and the last on 31.03.2013. Argued that the impugned award miscalculated the amount due by including bills from 30.03.2011 to 24.09.2012, urging that these 20 bills should be excluded.

The respondent made the following counter-submissions:

• That the appellant never raised any issue regarding the existence of a running account. Pointed to paragraphs (19) to (25) of the appellant's statement of defense before the Sole Arbitrator, highlighting the absence of any specific objection to the inclusion of 20 bills in the outstanding dues computation.
• That since payments were made on a running account, the claim was not barred by limitation. Specifically mentioned that the last payment by the appellant occurred on 07.01.2013, supporting the continuous nature of the running account.

Analysis by the Court

The Court observed that though the agreement was executed on 25.02.2015, however, there were certain supplies that were made prior to the execution of the agreement on running account bills and the parties had verbally as well as in writing made modifications to the agreement to include those previous supplies.

The Court held that supplies made prior to the date of the agreement would be governed by the arbitration clause in the agreement if the parties made verbal and written modifications to the agreement to include those supplies to settle their running accounts.

The Court also observed that during the arbitral proceedings, the appellant had never raised any objection when the tribunal included 20 bills/invoices that were prior to the agreement to the claim of the respondent.

The Court held that a party cannot challenge an arbitral award on the ground that the tribunal went beyond the scope of reference when it admittedly did not raise any objection when the alleged breach was first committed by the tribunal.

The Court held that the tribunal’s decision to include certain invoices in the claim cannot be challenged under Section 34 as being beyond the reference to arbitration when no such objection was raised before the arbitral tribunal.

Accordingly, the Court dismissed the appeal.

that a party cannot challenge an arbitral award on the ground that the tribunal went beyond the scope of reference when it admittedly did not raise any objection when the alleged breach was first committed by the tribunal.

The Court held that the tribunal’s decision to include certain invoices in the claim cannot be challenged under Section 34 as being beyond the reference to arbitration when no such objection was raised before the arbitral tribunal.

Case Title: Aman Hospitality Pvt Ltd v. Orient Lites

Citation: 2023 LiveLaw (Del) 1158

Date: 17.11.2023

Counsel for the Appellant: Mr. P. K. Agrawal, Ms. Rohini Das, Mr. Akshay, Mr. R. S. Yadav, Advs.

Counsel for the Respondent: Mr. Tushar Agarwal and Mr. Arun Kumar, Advs.

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