Punjab & Haryana High Court Reiterates Limited Scope For Interference U/S 34 & 37 Of Arbitration Act, Upholds Award In Land Development Dispute

The Punjab and Haryana High Court bench of Justices Arun Palli and Vikram Aggarwal has reiterated that the scope of interference with an arbitral award under Section 34 of the Arbitration and Conciliation Act, 1996, is narrow, and the appellate jurisdiction under Section 37 is even more circumscribed. The court reiterated that jurisdiction under Section 34 and Section 37 of the Act is not akin to normal appellate jurisdiction. It held that interference with an arbitral award is permissible only if it conflicts with public policy or is patently illegal. The court reiterated that an award should not be set aside simply based on an alternative interpretation of the agreement.

The court upheld an arbitral award in favour of village landowners, who forfeited a security deposit upon acquisition of land to be used for a Development Project, in accordance withthe terms in the Development Agreement.

Brief Facts:

The Respondents are owners of land situated in village Tigra, District Gurugram. On 02.09.2005, the Appellant and the Respondents executed a development agreement regarding the utilization of the land for the development of a Commercial Complex/IT Complex. The Respondents were paid an interest-free refundable security deposit.

The project was to be completed within 6 years from the execution date. In case of default on the part of the appellant, the entire security amount was to be forfeited. It was agreed that the agreement would be automatically cancelled, and any documents executed by the parties would be null and void. The agreement also had a force majeure clause. The parties agreed that if the Government of Haryana, the Land Acquisition Collector, or any other authority acquired the land during the term of the agreement, the security amount would be forfeited, the agreement would be cancelled, and the appellant would have no claim to any expenditure, amount, or lien on the land.

On 12.12.2008, a portion of land out of the total land was notified under Section 4 of the Land Acquisition Act, 1894. A declaration under Section 6 was issued on 11.12.2009. An award was passed on 23.11.2011. Accordingly, some land out of the total land came under acquisition whereas, for some portion, license was granted. The Respondents sent a legal notice to the appellant, stating that the agreement stood cancelled and that the appellant was not left with any interest in the land.

The Appellant invoked the arbitration clause. Costs of Rs.4 lakh was imposed on the appellant which was ordered to be paid to the respondents. Thereafter, the Appellant filed a petition under section 34 of the Arbitration and Conciliation Act, 1996. The petition was dismissed by the Special Commercial Court, Gurugram vide impugned order dated 16.10.2019. The Appellant challenged the impugned order.

Contentions of the Parties:

Counsel for Appellant contended that the Arbitrator could not set aside the entire development plan. Further, time was never agreed to be the essence of the agreement, and the respondents reaped the benefits of the development agreement until a very late stage, when the land was about to be released from acquisition, the respondents became dishonest and withdrew unilaterally from the development agreement. It was submitted that the section 34 petition was dismissed without appreciating the controversy in the correct perspective.

Per contra, counsel for the Respondents submitted that a section 34 petition is not an appeal and an award can be interfered with only on the limited grounds available under Section 34. Further, the Arbitrator dealt with every aspect extensively and, therefore, no interference was called for.

Observations:

The court noted that after the petition under Section 34 is decided, an appeal can be preferred under Section 37. The court reiterated that the jurisdiction of the Court under Section 34 of the 1996 Act is relatively narrow and the jurisdiction of the Appellate Court under Section 37 is all the more circumscribed and, therefore, the scope for interference is limited. The court relied upon the case of National Highways Authority of India vs. M/s Hindustan Construction Company Limited [2024 AIR (SC) 2383]. Reference was also made to Associate Builders v. DDA and MMTC Ltd. v. Vedanta Ltd. and MMTC Ltd. v. Vedanta Ltd., which held that interference with an award is only permissible when it conflicts with the public policy of India or is patently illegal.

The court referred to Konkan Railway Corporation Limited vs. Chenab Bridge Project Undertaking, which held that:

“the scope of jurisdiction under Section 34 and Section 37 of the Act is not akin to normal appellate jurisdiction. It is well-settled that courts ought not to interfere with the arbitral award in a casual and cavalier manner. The mere possibility of an alternative view on facts or interpretation of the contract does not entitle courts to reverse the findings of the Arbitral Tribunal.”

The court observed that the Arbitrator considered the matter thoroughly and returned detailed findings. It held that the force majeure clause could not be invoked as only a portion of land was acquired. The court concurred with the tribunal's holding that the appellant failed in its obligations.

The court held that the Special Commercial Court rightly held that the section 34 petition was in the nature of an appeal against the award. It reiterated that the evidence produced before the Arbitrator could not be reappraised. It held that the arbitrator's finding was not against the Public Policy of India and not rendered in violation of the law. The court thus dismissed the appeal.

Case Title: Active Promoters Private Limited vs. Desh Raj and Others

Case Number: FAO-CARB-3-2020 (O&M)

Date of Judgment: 18.11.2024

Counsel for the Appellant: Mr. Vipul Sharma, Advocate.

Counsel for the Respondents: Mr. Aashish Chopra, Senior Advocate with Ms. Rupa Pathania, Advocate; Ms. Gurpreet Randhawa, Advocate and Ms. Nitika Sharma, Advocate.

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