05 Nov 2020

Arbitral Award cannot be interfered into unless afflicted by corruption, bias or shadowed by extraneous considerations - Delhi High Court

Case : Shon Randhawa v. Ramesh Vangal & Ors. FAO (OS) (COMM) 95/2020 & CM Nos. 18959/2020 & 18962/2020

Court : Delhi High Court

Bench : Justice Rajiv Sahai Endlaw and Justice Asha Menon

Decided on : 05 Nov 2020

Relevant Statutes

Sections 37(1)(c), 34, 9 and 11 of the Arbitration & Conciliation Act, 1996

Section 13(1A) of the Commercial Courts Act, 2015

Section 10(1) of the Delhi High Court Act, 1966

Brief Facts and Procedural History

1. The respondents No. 1 and 2 were promoters of the respondent No. 3 Company.

2. The respondents No. 1 and 2 approached the appellant and respondent No. 4 Iqbal Jumabhoy, seeking investment in the respondent No. 3 Company by the purchase of 50% equity shares of the respondent No. 3 Company and a Share Purchase Agreement dated 26th September 2006 (SPA) containing an arbitration clause was entered into, where under the respondents No. 1 and 2 agreed to sell their 30,000 shares constituting 50% of the entire issued, subscribed and voting equity share capital of the respondent No. 3 Company to the appellant and respondent No. 4, for a total sale consideration of Rs. 10 crores.

3. The respondent No. 1 on 18th December 2007 requested the appellant and the respondent No. 4 for Rs. 6.5 crore towards consideration for the purchase of shares of the respondent No. 3 Company and on December 2007, the appellant and the respondent No. 4 informed that they could not mobilise the funds requested and also that the conditions precedent in the SPA had not been satisfied and therefore there was no question of any monies being released pursuant to the SPA.

4. Appellant thereafter informed the respondent No.2, that in case of sale of the project to a third party for Rs.30 crore, the appellant and the respondent No.4 were entitled to an amount of Rs. 8 to 9 crore.

5. Thereafter the respondents No.1 and 2 negotiated with third parties.

6. On 1st September 2008, the respondent No.4 informed the appellant that if the sale to a third party is concluded, the appellant and the respondent No. 4 were due to receive a sum of Rs. 8.5 crores; the appellant however informed the respondents No.1 and 2 that the appellant and the respondent No. 4 would be entitled to a sum of Rs.9.4 crore plus interest.

7. On 25th November 2008, the respondents No. 1 & 2 proposed to the appellant and respondent No. 4 that the sale under SPA to the appellant and respondent No. 4 be of only 49% share capital of the respondent No.3 Company instead of 50% and if the same was not agreeable to the appellant and respondent No. 4, the respondents No. 1 and 2 will refund the advance of Rs. 3 crore with interest.

8. The appellant filed an application under Section 9 of the Arbitration & Conciliation Act, 1996 and by an order dated 6th October 2010 wherein the respondents No. 1 to 3 were restrained from acting further.

9. The parties exchanged legal notices and by an order dated 3rd November 2011 of the Supreme Court on an application under Section 11 of the Arbitration & Conciliation Act, 1996 filed by the appellant, the Arbitral Tribunal (AT) of sole Arbitrator was constituted.

10. The Arbitral Tribunal held that:

11. The SPA was duly executed and concluded and enforceable and the AT had jurisdiction to entertain and adjudicate the claim of the appellant and the respondent No.4

12. The SPA had not been terminated by the appellant; the appellant and respondent No. 4 were at all times ready and willing to perform their part of the agreement and the conditions precedent set out in the SPA were satisfied only on or after 24th April 2010

13. The respondents No. 1 had committed a breach of the terms and conditions of the SPA.

14. The grant of specific relief is a discretionary remedy as evident from Section 20 of the Specific Relief Act, 1963. And in the absence of the Shareholders Agreement, to grant specific performance under such circumstances was entirely discretionary. Thus, in view of the existing circumstances and legal provisions, the appellant was not entitled to specific performance of the SPA.

15. Ends of justice would be served by directing the respondents No. 1 to 3 to return to the appellant and respondent No. 4 the sum of Rs. 3 crore and by way of damages the said amount be liable to be returned with interest at 24% per annum from the original date of receipt of money by respondents No. 1 to 3 till the date of actual payment; and, (xv) a further amount of Rs. 25 lakhs were also directed to be paid by respondents No. 1 to 3 to the appellant and respondent No. 4 towards costs of arbitral proceedings.

16. Single Judge of High Court passed an order of dismissal of petition preferred by the appellant under Section 34 of the Arbitration & Conciliation Act, 1996 with respect to the aforesaid Arbitral Award dated 9th October 2014.

17. The present appeal has been filed under Section 37(1)(c) of the Arbitration & Conciliation Act, 1996 read with Section 13(1A) of the Commercial Courts Act, 2015 and Section 10(1) of the Delhi High Court Act, 1966 against the said order.

The Issues of the Case

Whether the arbitral award conflicts with the public policy of India?

Whether the discretion exercised by the Arbitration Tribunal violated the settled judicial parameters?

The Observations of the Court

1. In Raj Kumar Brothers Vs. Life Essentials Personal Care (P) Ltd. MANU/DE/1930/2020 (DB), it was held that the Arbitration and Conciliation Act, 1996 being a special statute and a self-contained code and in accordance with Section 37 appeals are confined only to the matters prescribed therein, Section 10 of the Delhi High Court Act, 1966 cannot be invoked in matters pertaining to arbitration. So in the present case Section 10 of the Delhi High Court Act, 1966 cannot be invoked.

2. In Jhang Cooperative Group Housing Society Ltd. Vs. Pt. Munshi Ram & Associates Pvt. Ltd. (2013) 202 DLT 218 (DB), while reiterating that under Section 37 the judicial scrutiny and scope of interference is further narrower than the narrow scope of interference under Section 34, it was held that an appeal under Section 37 is like a second appeal, the first appeal being to the Court by way of objections under Section 34; where there are concurrent findings of fact of law, first by the Arbitration Tribunal which are then confirmed by the Court while dealing with the objections under Section 34, in an appeal under Section 37, the appellate Court would be very cautious and reluctant to interfere in the findings in the award.

3. The reasoning by the Single Judge of the High Court, that the grant of relief of specific performance (under the Specific Relief Act, 1963, prior to its amendment with effect from 1st August 2018) was discretionary and the discretion exercised by the Arbitration Tribunal was not in violation of the settled judicial parameters for exercise of such jurisdiction, cannot be said to be preposterous or overlooking any patent error in the arbitral award.

4. It has been held in Parakunnan Veetill Joseph's Son Mathew Vs. Nedumbara Kuruvila's Son 1987 Supp SCC 340, Gobind Ram Vs. Gian Chand (2000) 7 SCC 548, Bal Krishna Vs. Bhagwan Das (2008) 12 SCC 145, Jayakantham Vs. Abaykumar (2017) 5 SCC 178 that a party is not entitled to get a decree for specific performance merely because it is lawful to do so.

5. The Bench of the High Court observed that the public policy of India, in the matter of specific performance of contracts, as contained in the Specific Relief Act, 1963 till prior to 1 August 2018, was that the relief of specific performance is discretionary and not mandatory and which discretion the parties herein agreed to be exercised by a forum of their choice. Merely because with effect from 1 August 2018 the Specific Relief Act, particularly Sections 10 and 20 thereof, were amended and took away the discretion earlier vested in the Court/Arbitrator, would not affect the arbitral award made nearly four years prior thereto and the arbitral award cannot be said to be contrary to the public policy of India on that account.

6. The hearing of the appellate court has to be confined to showing that the view taken by the Section 34 Judge is preposterous or what the Section 34 Judge has overlooked.

7. Arbitration is a mechanism of dispute resolution, an alternative to the courts set up by the State. However dispute resolution through arbitration, being by a forum of the choice of the parties, there is no provision for appeal. Several amendments have been carried out thereto from time to time, with each amendment being guided by the spirit of reducing judicial interference with arbitration proceedings and arbitral awards. But the forum has to still comply with certain basic norms/tenets of dispute resolution i.e., the principles of natural justice. Section 34 of the arbitration act enlists the grounds for setting aside an award. Besides that, another ground is “conflict with the public policy of India” which indicates if the award is biased or corrupt or has been rendered for extraneous considerations, keeping in mind the explanation about ‘patent illegality’ in Section 34(2).

8. Delhi Development Authority Vs. Bhardwaj Brothers, AIR 2014 Del 147, held that the scope of judicial review of an arbitral award is akin to review under Article 226 of the Constitution of India, where it is a settled legal position that the judicial review is of the decision-making process and not of the decision on merits and cannot be converted into an appeal. The arbitral award in the present case is not afflicted by fraud or corruption or bias. Moreover, a mere wrong decision without anything more is not enough to attract the power of judicial review, being the supervisory jurisdiction conferred on the court under the Arbitration & Conciliation Act, 1996. The court cannot correct the errors of arbitrators.

9. It is concluded that the said award cannot be said to be contrary to the public policy of India and the Single Judge cannot be said to have overlooked anything or having taken a preposterous view of the matter

The Decision by the Court

The Honourable Delhi High Court dismissed the appeal for being devoid of merits. The counsels of respondents did not present arguments.

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