Can't Challenge Award U/s 34 Of A&C Act If Arbitral Tribunal's Composition Aligns With The Agreement, Even If Part I Stands Violated: Telangana High Court

Brief Facts:

The matter pertained to a contract between Respondent No.1, a contractor, and the Petitioner-Union of India, Railways, for the construction of staff quarters. The agreement specified a completion period of 6 months from the date of the acceptance letter. However, despite the delivery of the site and acceptance letter, the work did not commence as scheduled. Respondent No.1 requested multiple extensions due to various reasons, such as non-execution of the agreement, delays in payment, political agitations, adverse weather conditions, and other factors.

The Petitioner terminated the contract on 18.03.1992, citing non-completion of work within the agreed timeframe and various reasons for the delays. Respondent No.1 then sought the appointment of Arbitrators, leading to the appointment of Respondent No. 2 and 3. The Joint Arbitrators passed an award on 24.03.1998, granting compensation to Respondent No.1 for various claims totalling Rs.8,74,438/-, plus interest.

Aggrieved by the arbitration award, the Petitioner filed an application under Section 34 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”) in Telangana High Court (“High Court”), resulting in the setting aside of the award. In response, Respondent No.1 (“Appellant”) filed a Civil Miscellaneous Appeal in the High Court to challenge the impugned Common Order.

The primary contention of the Appellant was that the scope of interfering with an arbitration award is limited unless there is an error apparent on the face of the record or perversity in the award. The Appellant argued that in the present case, there was no evidence of such errors or perversity, and even if there were questions of law involved, the High Court should not interfere when two views are possible.

On the other hand, the Petitioner contended that the composition of Arbitrators was flawed, as there should not be an even number according to Section 10 of the Arbitration Act. The Appellant responded that objections to the composition should have been raised at the initial stage, as per Section 4 of the Arbitration Act, and not at a later stage.

Observations by the High Court:

The High Court noted that interference with an arbitration award is only justified if there is perversity or an error of law apparent on the face of the record. It held that if the arbitrator has taken a possible view, the Court should not interfere, even if another reasonable interpretation is possible.

In the present case, the High Court observed that there was no material to demonstrate an error apparent on the face of the record or perversity in the award. Additionally, it noted that the Petitioner failed to establish any question of law in the case, as the grounds raised by it were based on questions of fact rather than legal issues.

Further, the High Court held that an arbitral award can be set aside only on specific grounds mentioned in Section 34 of the Arbitration Act. It emphasized that Section 34(2)(a)(v) does not apply if the composition of the arbitral tribunal is in accordance with the agreement of the parties. Moreover, it clarified that objections to the composition should have been raised at the initial stage, and the parties are deemed to have waived their right to object if not raised.

Consequently, the High Court concluded that the Arbitrators adjudicated all aspects appropriately, and there was no basis for interference. It set aside the Common Order and restored the Award passed by Joint Arbitrators-respondent Nos.2 and 3.

Case Title: K. Venkateswara Rao vs Union Of India.

Case Number: CIVIL MISCELLANEOUS APPEAL No.718 OF 2009.

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