Delhi High Court Emphasises Limited Scope for Interference with Arbitral Award under Section 34

Delhi High Court Emphasises Limited Scope for Interference with Arbitral Award under Section 34

The petitions filed under Section 34 of the Arbitration and Conciliation Act, 1996, seeking to invalidate the award issued by the Arbitral Tribunal, was dismissed by the Delhi High Court. The Court rejected the petitioner's argument claiming that the award in question was evidently unlawful.

Justice Chandra Dhari Singh, presiding over the Single Judge Bench, emphasised the requirement for clear illegalities or deficiencies evident in the award or actions that profoundly disturb the Court's conscience in order for it to be deemed eligible for setting aside.

The Court stated that the award in question was well-reasoned and did not violate the fundamental principles of Indian law, thereby providing no grounds for intervention. The petitioner failed to demonstrate that any of the conditions outlined in Section 34 of the Arbitration Act were fulfilled.

Furthermore, it was noted that the petitioner had not provided supporting evidence regarding how the arbitrator had made errors in resolving the dispute. The Court cited the established legal principle, as determined by the Supreme Court, that the scope of interference with an arbitral award under Section 34 of the Arbitration and Conciliation Act, 1996, is considerably limited and confined. The courts are not meant to act as appellate authorities when examining a challenge to an award issued by an arbitrator, who possesses expertise in evaluating evidence and duly considers the facts, circumstances, evidence, and materials presented before them.

In the present case, the petitioner raised objections against the disputed award based on claims of patent illegality, contending that it was in conflict with the fundamental policy of India and public policy.

The Court reaffirmed that the legislative intent behind the enactment of the 1996 Act was to ensure the prompt and efficient resolution of disputes, with a specific aim to restrict judicial intervention in arbitral proceedings.

“In order to facilitate this process and to maintain a check on it, a provision to set aside the Award was included. But even then, the Award may only be set aside if it fulfils certain criteria to qualify as being bad in law… An unfettered scope of intervention in his functioning would defeat the spirit and purpose of the Arbitration Act. Therefore, the Hon'ble Supreme Court has time and again reiterated that the scope of intervention of the Courts is limited in the cases of challenge under Section 34,” the Court observed.

The Bench in question cited two important cases to underline the limited scope of Section 34 of the Arbitration and Conciliation Act of 1996. Firstly, in the case of UHL Power Co. Ltd. v. State of H.P., the Court reiterated the narrow interpretation of Section 34, indicating that the grounds for setting aside an arbitral award should be strictly construed.

Secondly, the Bench referred to the case of Ssangyong Engg. & Construction Co. Ltd. v. NHAI, where it was established that the re-evaluation of evidence cannot be permitted on the grounds of patent illegality in a Section 34 petition.

The Bench, therefore, concluded that while exercising its jurisdiction under Section 34 of the Act, it would not engage in an appellate process or re-examine the facts and evidence presented in the case.

The Bench also emphasised that arbitrators are required to adopt a judicial approach and uphold the principles of natural justice. They should ensure a fair and unbiased process throughout the arbitration proceedings. Furthermore, the Court noted that the decision reached by the arbitrator should not be deemed as egregious or perverse.

“It is to be understood that Sub-section (2-A) to Section 34 of the Act, 1996 states that the Arbitral Award may be set aside by the Court if the Court finds the impugned Award is vitiated by patent illegality appearing on the face of the Award. The proviso stipulates that the Award shall not be set aside merely on the ground of erroneous application of law or by misappreciation of evidence. An Award can also be set aside under sub-clause (ii) to Clause (b) of Section 34(2) on the ground that it is in conflict with the public policy of India, which expression has been explained in the Explanation(s) to the said section,” Justice Chandra Dhari Singh stated in his ruling.

After reviewing the award, the Bench concluded that the arbitrator had adequately considered the evidence presented during the arbitration proceedings. Therefore, the Bench found no grounds to interfere with the arbitrator's decision. The Bench applied the triple test of perversity, which assesses whether the decision is irrational, outrageous, or blatantly wrong. In this case, the Bench determined that the arbitrator, as a representative of the contract, had appropriately interpreted and applied the contractual clauses to resolve the dispute. The Bench found that the facts of the case had been harmoniously aligned with the provisions of the contract, demonstrating a reasonable and just approach taken by the arbitrator.

The Bench held the opinion that the Arbitral Tribunal had demonstrated a judicial approach in its decision-making process, ensuring the principles of jurisprudence and natural justice were upheld. It recognised that the arbitrator held the ultimate authority in the arbitration proceedings and had the power to adjudicate the claims in accordance with the fundamental principles of law, natural justice, and jurisprudence. The Bench stated that as long as the award did not substantially violate or offend the conscience of the Court, there was no need for it to interfere with the arbitrator's decision.

The Bench acknowledged and recognised that the arbitrator had meticulously and thoroughly addressed each claim raised by the parties in the arbitration. It noted that the arbitrator had taken into account various factors, including the facts of the case, the evidence presented, and the relevant precedents cited by the parties.

Furthermore, the Bench observed that the petitioner's main argument revolved around the claims being time-barred, which led to the Arbitrator exceeding their authority by accepting these claims. The Bench emphasised that since the plea of limitation was not raised during the arbitration proceedings, it should be inferred that the Court cannot entertain this plea. The Bench stated, “Since the plea of limitation was not taken, by virtue of the express provision of Section 4 of the Act, 1996, the petitioner has waived the said defence and cannot agitate the same.”

After carefully examining the facts, evidence, and the challenged Award, the Bench deduced that the Arbitral Tribunal had not committed any flagrant illegality or produced an Award that displayed evident perversity. Consequently, it concluded that the Arbitral Tribunal had not overstepped its jurisdiction or mandate. The Bench further emphasized that the Tribunal had thoroughly assessed all the presented evidence and delivered a logically sound Award.

“Therefore, following the principles of natural justice and equity, it is apparent that the learned Arbitrator has acted well within his power to adjudicate the dispute effectively, by working within his mandate and giving due consideration to the “Birth-giver” Contract and the evidence placed on record, and thus, it does not warrant the interference of the Court under Section 34 of the Act, 1996,” the Court ruled.