Reliance On Evidence Filed After Conclusion Of Hearing; Award Is Patently Illegal: Bombay High Court

The Single Bench of Justice Rohit B. Deo held that the power of the court under Section 34 (4) of the Arbitration and Conciliation Act, 1996 (A&C Act) to remand the matter back to the arbitrator is discretionary, which must be exercised judiciously and only in appropriate cases. The Court added that where the integrity of the arbitral proceedings was compromised, and crucial evidence was introduced on record after conclusion of hearing, it was not an appropriate case to exercise discretion under Section 34 (4).

The land owned by the claimant Sarjuprasad was acquired under the provisions of the National Highways Act, 1956 (NHA). The competent authority passed an award granting compensation to the claimant for the land acquired. Dissatisfied with the quantum of compensation awarded, the claimant filed an application under Section 3G(5) of the NHA, seeking determination of the compensation amount by the arbitrator. The Arbitrator passed an award enhancing the compensation amount. The National Highways Authority of India (NHAI) filed an application under Section 34 of the A&C Act, challenging the arbitral award before the Principal District Judge. The application was rejected by the lower court, against which NHAI filed an appeal under Section 37 of the A&C Act before the Bombay High Court.

The appellant/NHAI submitted before the High Court that certain sale deeds, on the basis of which the compensation awarded to the claimant/landowner was enhanced, were brought on record only after the hearing in the arbitral proceedings was concluded. NHAI added that the said sale deeds were taken on record behind its back, after the Arbitrator had reserved the order. Thus, NHAI argued that the Arbitrator had acted in contravention of the mandatory provisions contained in Section 24 and Section 28 of the A&C Act. Hence, it contended that the arbitral award was in conflict with the fundamental policy of Indian law and in conflict with the most basic notions of morality or justice.

Perusing the records of the arbitral proceedings, the Court observed that the relevant sale deeds were the only documentary evidence on the basis of which the claimant was able to establish the market rate of the land acquired. Further, on the basis of the said sale deeds, the claimant was awarded the enhanced compensation by the Arbitrator. The Court ruled that the said sale deeds were introduced on record behind the back of NHAI, after the hearing in the arbitral proceedings was concluded.

Referring to the provisions of Section 24 of the A&C Act, the Court noted that the parties must be given sufficient advance notice of any hearing and any meeting of the arbitral tribunal, for the purpose of inspection of documents, goods or other property. Further, every statement, document or information supplied to the arbitral tribunal by one party, must be communicated to the other party.

The Court ruled that though strict rules of evidence do not apply to arbitral proceedings, the arbitrator cannot act in contravention of the principles of natural justice.

The bench said that the only documentary evidence relied upon by the Arbitrator was introduced on record in a manner which was "dangerously bordering on the clandestine", and that the Court cannot remain a mute spectator and turn a blind eye to the egregious illegality in the award.

Thus, the Court held that the Arbitrator had clearly contravened the fundamental policy of Indian law and that the arbitral award was in conflict with the most basic notions of morality or justice.

"I have no hesitation in holding that the arbitration award is vitiated on account of patent illegality. The mandatory provisions of the Act of 1996 are breached. The contravention of the principles of natural justice shocks judicial conscious considering that the only documentary material relied on is introduced on record after the conclusion of hearing, surreptitiously. The award contravenes the fundamental policy of Indian law and militates against the basic notions of morality and justice."

The claimant/land owner - Sarjuprasad, filed an application under Section 34(4) of the A&C Act before the Bombay High Court, contending that the matter should be remanded back to the Arbitrator so as to eliminate the grounds for setting aside the arbitral award. The claimant submitted that even if it was assumed that the relevant sale deeds were brought on record behind NHAI's back and that NHAI did not have the opportunity to contest the relevance or admissibility of the sale deeds, the said defect was procedural in nature. Hence, he argued that the said defect can be cured by remanding the matter to the Arbitrator and that the NHAI can be given the opportunity to dispute the relevance of the sale deeds before the Arbitrator.

While holding that the power of the court under Section 34 (4) of the A&C Act to remand the matter back to the arbitrator is discretionary, the Court held that the said power must be exercised judiciously and only in appropriate cases.

Rejecting the application under Section 34 (4), the Court ruled that the integrity of the arbitral proceedings was compromised and hence, it was not an appropriate case to exercise discretion under Section 34 (4).

"Mr. Anand Jaiswal did make a strenuous attempt to persuade me to hold that the power of remand will have to be exercised since the defect can be cured by giving opportunity to the claimant to prove the saledeeds in accordance with law, and to the NHAI, to rebut. I am afraid, the submission is too simplistic and misses the point that the integrity of the proceedings stands compromised. The fact that crucial evidence, and indeed, the only evidence which is the basis of the award, was permitted to be introduced on record after the conclusion of the hearing, and there is nothing in the entire record including the order-sheets to indicate how the saledeeds came on record, there is something more than meets the eye", the Court said.

Ruling that the arbitral award was patently illegal, the Court allowed the appeal and set aside the order of the lower court.

Case Title: Secretary to the Government of India, Ministry of Shipping, Road Transport and Highways & Anr. versus The Additional Commissioner, Nagpur & Ors.

Dated: 12.08.2022 (Bombay High Court, Nagpur Bench)

Counsel for the Appellant: Mr. Ajay Ghare and Mr. A.A. Kathane

Counsel for the Respondent: Mr. N.R. Rode, AGP; Mr. Anand Jaiswal, senior counsel assisted by Mr. Y.R. Kinkhede & Mr. H.R. Gadia

Citation: 2022 LiveLaw (Bom) 364 

Click Here To Read/Download Order