Mere Contravention Of Substantive Law Of India No More A Ground Available To Set Aside Arbitral Award: Calcutta High Court
The Calcutta High Court observed that for an award to be set aside, there must be a patent illegality, an error that goes to the very root of the matter and affects the jurisdiction of the Arbitrator in deciding a dispute.
The Calcutta High Court held that a mere contravention of the substantive law of India is no more a ground available to set aside an Arbitral Award.
The Court held thus in an Appeal and a Cross-Appeal arising out of a composite Order which disposed of two Applications for setting aside of Arbitral Awards on grounds under Section 34 of the Arbitration and Conciliation Act, 1996 (A&C Act).
A Division Bench comprising Justice Soumen Sen and Justice Biswaroop Chowdhury observed, "A mere contravention of the substantive law of India, by itself is no more a ground available to set aside an arbitral award in view of paragraph 39 of Ssangyong (supra). At the highest it could be said to be erroneous application of the law, although we are not agreeable to accept such submission and the view expressed by the learned Single Judge in this regard is accepted."
The Bench said that for an award to be set aside, there must be a patent illegality, an error which goes to the very root of the matter and affects the jurisdiction of the Arbitrator in deciding a dispute. It added that if the Arbitrator lacks the authority to decide the dispute, the award is a nullity and if the disputes are by nature non-arbitrable, the assumption of jurisdiction would be an illegality.
“In the context of the fact stated and narrated in the award, we are of the view that the decision to refund is not amenable to a judicial scrutiny under Section 34 of the Arbitration and Conciliation Act, 1996. The direction to return the principal amount was with a view to prevent unjust enrichment. The learned arbitrator has felt that the retention of the said principal sum would be unjust and inequitable. The retention of the money would be contrary to justice or against equity”, it also observed.
Senior Advocates S.N. Mookherjee and Suman Dutt represented the Appellants while Senior Advocates Ratnanko Banerjee and Anirban Ray represented the Cross-Appellants.
Factual Background
The dispute in this case arose out of a Share Purchase Agreement (SPA) entered into between the parties. The Appellants were the Respondents in the arbitration proceeding and also in the proceeding for setting aside of the award initiated by the Cross-Appellants. The Respondent No. 1 in the said arbitration proceeding claimed specific performance of contract along with damages for the breach of the contract whereas the Appellants by way of counterclaim, prayed for specific performance of their version of the self-same agreement. The said counterclaim was dismissed and resulted in an Application for setting aside of the award limited to the refusal of the claim for interest from the date of payment of consideration till the date of commencement of the arbitration proceeding.
The Arbitrator allowed interest @ 9% per annum from the date of filing of the statement of claim till realisation and rejected the claim for specific performance of contract as claimed by the Appellants. However, the Appellants were directed to refund the sum of approx. 19.90 crores which was received by the Appellants from the claimants towards consideration. Interest was also granted on the same. The Single Judge upheld the award and dismissed both the Applications. This Order was under challenge by both the parties before the High Court.
Reasoning
The High Court after hearing the arguments from both sides, noted, “The direction for refund of the amount with interest has to be considered in the background of the conduct of the parties and their admissions in the proceeding. The proceeding before an arbitrator is not a proceeding before a court of law. An element of informality is attached to such proceeding and the views of the arbitrator as appear from the award is required to be considered in the said perspective and keeping in mind the immunity that an award enjoys under the Act.”
The Court further noted that there are two versions of the agreement and the dispute is with regard to the actual consideration amount and payment obligations.
“Submissions have been made on behalf of Deepak that interest, if at all allowed, it should be on and from the date when such claim is adjudicated that is, the date of the award, is also not acceptable in view of admission of its group of accepting the said amount of Rs.19.92 crores and its utilization. They have enjoyed the said amount from the date when such amount had received by Deepak. Subsequently, they agreed to refund the principal amount”, it said.
The Court was of the view that the reasoning of the Arbitrator in granting interest for the period mentioned therein falls within the discretionary jurisdiction of the Arbitral Tribunal and is not amenable to a challenge under Section 34 of the A&C Act.
“In fact, we agree with the learned single judge that in so far as the period to which the interest was a granted, that is to say, on and from date of filing on the statement of claim was a lenient view and such leniency also falls within the discretion of the tribunal. The tribunal having held that the Deepak is liable to refund the entire consideration amount despite no relief specifically included in that regard in the Statement of Claim there cannot be any justifiable reason to hold that only the interest component can be segregated and the cause of action held to have arisen with the award”, it added.
The Court also elucidated that once there is a clear finding that the claimant is entitled to refund of the principal amount, interest becomes a necessary corollary.
“We completely agree with the finding of the learned Single Judge in this regard. The challenge to the interest component by either side fails when considered in the context of the restricted and limited jurisdiction that the court exercises under Section 34 and 37 of the Arbitration and Conciliation Act, 1996. The scope of investigation is extremely myopic and only confined to the grounds mentioned in the said section”, it remarked.
The Court said that the challenge to the awarding of costs is also untenable. It, therefore, concluded that the Arbitrator has given a reason and the discretion exercised by the Arbitrator is not amenable in a proceeding under Section 34 of the A&C Act.
Accordingly, the High Court refused to interfere with the Single Judge’s Order.
Cause Title- Deepak Bhargava & Ors. v. Jagrati Trade Services Pvt. Ltd. & Ors. (Case Number: AO-COM/38/2024)
Appearance:
Appellants: Senior Advocates S.N. Mookherjee, Suman Dutt, Advocates P. Sinha, K. K. Pandey, Zeeshan Haque, Shubhrajit Mookherjee, Yamini Mookherjee, Easha Manchanda, and Pooja Sett.
Cross-Appellants: Senior Advocates Ratnanko Banerji, Anirban Ray, Advocates Rudrajit Sarkar, Jai Kumar Surana, Debanghsu Dinda, Arundhuti Barman Roy, and Abhimonyu Ray.
