Bombay High Court
Grace Gharunda vs Naina Fernandez And 2 Ors on 10 August, 2022
Author: Gs Patel
Bench: G.S.Patel, Gauri Godse
Grace Gharunda v Naina Fernandez & Ors
15-OSAPP-536-IN-ARBP-1022-2016+.doc
rrpillai
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
APPEAL NO. 536 OF 2019
IN
ARBITRATION PETITION NO. 1022 OF 2016
Grace Gharunda,
a partnership firm, through its partner
Mr Naushad Hasanali Namavati
having its registered office at 6
Everest, 6th Floor, Hill Road, ...Appellant/
Bandra (West), Mumbai 400 050 (Org Respondent)
~ versus ~
Naina Fernandez,
Aged 53 years
W/o Stephen Alias Steven G Fernandez
(Deceased)
Salil Jason Fernandez,
Aged 35 years
S/o Stephen Alias Steven G Fernandez
(Deceased)
Sasha Marie Fernandez,
Aged 35 years
D/o Stephen Alias Steven G Fernandez
(Deceased) ...Respondents
All residing at 5, "Hamara" 13/A, 16th (Org.claimant
legal heirs)
Road, Bandra (West), Mumbai-400050
Digitally
signed by
RAJESHWARI
RAJESHWARI RAMESH
RAMESH PILLAI
PILLAI Date:
2022.08.17
11:12:40
+0530
Page 1 of 22
10th August 2022
Grace Gharunda v Naina Fernandez & Ors
15-OSAPP-536-IN-ARBP-1022-2016+.doc
A PPEARANCES
for the Appellant Mr M Khan, i/bMohd Rehan Sayeed
Chhapra.
for respondents Mr UP Bobade, i/b JH Ramugade
CORAM : G.S.Patel &
Gauri Godse, JJ.
DATED : 10th August 2022
ORAL JUDGMENT (Per GS Patel J):-
1. The Appeal is by the original respondent in Arbitration ("Gharunda"). This is a partnership firm. We are told that one of the two partners of Gharunda has since passed away. The entity may now be a proprietorship of the surviving partner. That makes little difference to the outcome. Gharunda filed an Arbitration Petition No.1022 of 2016 under Section 34 of the Arbitration & Conciliation Act challenging an Award passed by a Sole Arbitrator. The Award is dated 25th February 2016.
2. There were five claims in arbitration. Claim no.1 related to delivery of premises identified as G-4 in a development with the unusual name of Kit-Katwadi or now Kit-Kat Co-operative Housing Society, 16th Road, TPS III, Bandra (West), Mumbai 400 050. As part of Claim no.1 the Arbitrator directed Gharunda to pay to the original Claimant ("Fernandez"), whose legal heir is the Respondent in Appeal, an amount of Rs.7,25,000/-. Any delay in delivery of possession attracted an award of Rs.25,000/- per month Page 2 of 22 10th August 2022 Grace Gharunda v Naina Fernandez & Ors 15-OSAPP-536-IN-ARBP-1022-2016+.doc and on failure of payment of the rupee amount interest was to run at the rate of 18% per annum from the date of the Award.
3. Under Claim no.2, the Arbitrator awarded Fernandez a sum of Rs.5,77,046/- with interest at the rate of 18% per annum.
4. Under Claim no.3, the Arbitrator awarded Fernandez Rs.22.50 lakhs with interest at the rate of 18% per annum from 1st October 2012 till payment.
5. In Claim no. 4, the Arbitrator directed Gharunda to pay Rs.66,97,182/- to Fernandez with interest at the rate of 18% per annum.
6. Claim No. 5 was simply a liberty to Fernandez to take up the matter with the authorities concerned.
7. The learned single Judge SC Gupte J by his order of 17th October 2018 dismissed the challenge under Claim Nos. 1 and 2. Claim No.3 was, presumably because it was distinctly severable, read down or adjusted (in Gharunda's favour) by interpreting the Award to mean that the amount of Rs.22.50 lakhs as balance consideration was to be paid by Gharunda to Fernandez upon MCGM issuing an occupation certificate in respect of the Sale component, and not from an earlier date of 2007.
8. Gupte J admitted the petition on Claim No. 4 and said it was to come up in the normal course for hearing. Then there were Page 3 of 22 10th August 2022 Grace Gharunda v Naina Fernandez & Ors 15-OSAPP-536-IN-ARBP-1022-2016+.doc directions regarding the rupee amount of Claim No.4. We are told today that the parties have settled their disputes over Claim No. 4. The Appeal is pressed to the extent of Claims Nos. 1, 2 and 3.
9. The background is this. Fernandez (or more accurately Stephen Fernandez), the deceased father of the present Respondent in the appeal, was appointed as a developer for a slum rehabilitation project by the Kit-Katwadi Society. The project contemplated the construction of 51 residential and 10 commercial premises. Then there was an agreement of 16th July 2003 between Fernandez and Gharunda. By this, Fernandez agreed to transfer his development rights to Gharunda. The agreed consideration payable by Gharunda to Fernandes was Rs.50 lakhs. This was payable in three installments. Rs.5 lakhs was to be paid on or before the execution of the agreement. The next instalment of Rs. 22.50 lakhs was to be paid on obtaining an occupation certificate for the Rehab Component and the last instalment of Rs.22.50 lakhs was to be paid on obtaining occupation certificate in respect of the Sale Component. The development agreement required Gharunda to bear the expenses for complete implementation of the project, but Fernandez was responsible for shifting occupants and slum dwellers first to transit accommodation and then to permanent alternate accommodation i.e., the Rehab building.
10. There is no dispute that the first two installments of Rs 5 lakhs and Rs.22.50 lakhs were paid. In addition, Gharunda said that it had paid Rs.23 lakhs. There was a controversy whether this was towards expenses incurred by Fernandez or the last instalment. We Page 4 of 22 10th August 2022 Grace Gharunda v Naina Fernandez & Ors 15-OSAPP-536-IN-ARBP-1022-2016+.doc will turn to that shortly. Since there were disputes between Gharunda and Fernandez, these were taken to arbitration. Fernandez was the Claimant. Gharunda was the Respondent.
11. Claim no.1, as we noted was for possession of the premises described as G-4. Compensation was sought for illegally withholding possession i.e., on the case by Fernandez that Gharunda had not delivered possession for 78 months. Now the agreement was that Gharunda would allot to Fernandez 62 tenements in the Rehab component. The original figure was 64, but this was later brought down to 62. It was undisputed even in arbitration that Gharunda delivered possession of 61 of the 62 tenements. The controversy was related to the remaining one, the unit described as G-4. Gharunda claims that this tenement would be handed over to Fernandez later, only on approval of the amended plans.
12. The Arbitrator dealt with this claim at some length at pages 78 to 79. Unit G-4 measures 21.0 sq mts, and compensation was claimed from April 2006 to September 2012 at the rate of Rs.25,000/- per month totalling Rs.19.50 lakhs. The Arbitrator considered the pleadings and the evidence. He noted inter alia that there was no cross examination of Fernandez on the claim, and that it was undisputed that Gharunda had not delivered possession of the premises to Fernandez. Two questions arose. First, was Gharunda justified in withholding delivery of possession of unit G-4. Second, if compensation was to be granted, from what date should this be done? The Arbitrator addressed both. As to the first, he noted that in the pleadings the condition propounded by Gharunda found no Page 5 of 22 10th August 2022 Grace Gharunda v Naina Fernandez & Ors 15-OSAPP-536-IN-ARBP-1022-2016+.doc reflection in the correspondence, that is to say, in the contemporaneous documentary material before the Arbitrator. Gharunda also argued that the Kit-Kat Society had to pass a resolution in General Body Meeting. The Arbitrator held this to be baseless because Gharunda had a contract with Fernandez to construct the building. The contract itself stipulated no such condition for any one of the 62 units. There was in addition the fact that possession of 61 tenements had in fact been delivered. Thus, the Arbitrator concluded that there was no justification for withholding delivery of possession of Unit G-4.
13. As to the question of compensation the Arbitrator noted that Fernandez claimed Rs. 25,000/- per month from 31st March 2006 to September 2012. On this, too, there was no cross examination of Fernandez. The Arbitrator accepted the rate claimed. But the rate is one thing. The date from which it is to run is another, and the Arbitrator bore this in mind as well. He did not simply accept the date given by Fernandez. There is a letter of 18th February 2008, of which much was made, saying that Unit G-4 would be handed over to Fernandez upon approval of the amended plan. That approval came on 28th September 2012. Before the Arbitrator, therefore, was a question of whether Fernandez was entitled to compensation from that date. But the Arbitrator noted that by a letter of 19th May 2008, Fernandez had purported to cancel the letter of 18th February 2008 although the 19th May 2008 letter dealt with various other matters. The Arbitrator then noted that the claim statement made no further claim beyond September 2012, when possession was in fact delivered. Fernandez seems to have claimed compensation from the date of the occupation certificate. Even this claim the Arbitrator Page 6 of 22 10th August 2022 Grace Gharunda v Naina Fernandez & Ors 15-OSAPP-536-IN-ARBP-1022-2016+.doc rejected on the basis that there was then in place the 18th February 2008 letter. But he also found that there were several written letters all after 18th February 2008, in all of which Fernandez said that Gharunda was using the premises for storage as a warehouse. These letters showed Fernandez to be constantly demanding possession. These demands occurred in Fernandez's letters of 24th May 2010, 11th February 2011, 25th March 2011 and others. It was therefore not a situation where the premises were unusable. Gharunda, in the words of the Arbitrator, "found it convenient to use the said premises as a warehouse, but denied handing over possession on the basis that the approval of the amended plan had not come". It is in these circumstances that the Arbitrator awarded compensation from May 2010 until September 2012. We must bear in mind that in doing so the Arbitrator denied Fernandez a claim made from 31st March 2006 to May 2010. The rate being undisputed, the Arbitrator accepted it.
14. As Gupte J noted, this part of the Award on Claim no.1 does not justify interference. Interpretation is a mixed question of fact and law, as Gupte J held. The Arbitrators conclusion could not be termed as one in conflict with public policy, nor vitiated by a patent illegality. As to the question of damages, Gupte J held that this assessment was on evidence (including the consideration that the claimant had not been cross-examined). The view was thus supported by material on record.
15. We see no infirmity in the reasoning of Gupte J as regards Claim no. 1.
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16. This takes us to Claim no.2, which starts at the foot of page 79 and goes on till page 80. The claim is to recover expenses incurred by Fernandez in the project. It is in the amount of Rs. 28,77,046/- until May 2006. According to Fernandez, Gharunda paid only Rs.23 lakhs and thus he made the claim for the balance Rs. 5,77,046/-. In pleadings, this claim was met with a bald denial. Gharunda simply said it was not responsible for expenses. Before the learned Arbitrator reliance seems to have been placed on Clause 5 of the agreement which said that Gharunda would bear the expenses of the Architect and other expenses for the complete implementation of the scheme. Fernandez also relied on paragraph 38 of the General Power of Attorney. That too is noted.
17. Before us, it is sought to be contended that the Arbitrator overlooked Clause 7 of the development agreement. The difficulty in entertaining this submission is that it is not reflected in the Arbitral Award at all. We are told that it was part of the pleadings and even part of the written submissions. This is less than helpful. Often, many things are pleaded and many more are put into written submissions. What is argued is often much less. If a challenge is to be mounted, whether against an Arbitral Award or decision of the learned Single Judge on the basis that a particular point, though argued, was not dealt with or reflected in the impugned order, then the correct course -- and the only course -- available to the person challenging the award or order is to go back to the arbitrator or judge and file an application (which could be in the form of a note or praecipe) pointing out that the award or order has not dealt with a point specifically argued and urged. It is wholly impermissible to attack either an award or order on a ground that is not shown to have Page 8 of 22 10th August 2022 Grace Gharunda v Naina Fernandez & Ors 15-OSAPP-536-IN-ARBP-1022-2016+.doc been argued before the forum in question. It may sometimes happen that even after such an application is made, the tribunal or court does not pass a further order. But at least the application is on record to indicate that the point had been argued. It is singularly unfair and unjust to any arbitral tribunal and to orders from which we are hearing appeals to permit a counsel in appeal to attack an order on a ground not reflected in the order as having been argued. We decline to permit the Appellant to raise this ground before us now. We note that even in Gupte J's order there is a mention early in paragraph 3 of Clauses 5 and 7. But even before Gutpe J, no submission seems to have been made on Clause 7 at all. It is thus being taken for the first time in Appeal. That is in our view entirely impermissible.
18. Equally important is the arbitral finding that Gharunda did not challenge any of the particularised items of claim. Gharunda's only submission was that the amount of Rs.23 lakhs paid was towards the third and balance instalment. Fernandez pointed out that this could never have been so because the last instalment was Rs.22.50 lakhs and not Rs 23 lakhs. In any event, Fernandez had a separate claim for the third instalment of Rs.22.50 lakhs and that was Claim No.3.
19. On Claim No.2, Gupte J found that there was no cause to interfere. He held that whether Gharunda was responsible to pay these expenses was a matter of interpretation and his interpretation of Clause 5 of the agreement along with the power of attorney's Clause 38 was reasonable and could not be faulted.
Page 9 of 2210th August 2022 Grace Gharunda v Naina Fernandez & Ors 15-OSAPP-536-IN-ARBP-1022-2016+.doc
20. Then comes Claim no.3 which is for the balance consideration instalment of Rs.22.50 lakhs. Again, the Arbitrator rejected the submission that this was covered by the payment of Rs.23 lakhs referred to above. There was a very lengthy and detailed discussion in the Award of the material on record. Individual amounts were computed. Gharunda even filed a sur-rejoinder statement in which it came up with another with what the Arbitrator called "a different story". Here Gharunda purported to show that it had in fact repaid the expenses and actually overpaid. The Arbitrator noted that this was said for the first time, and it was unsupported by any pleading in the written statement or any reference in prior correspondence. Earlier, Gharunda had claimed that the amount paid was for FSI at the rate of Rs.2000/- per sq.ft but even this arithmetic did not add up. Hence the Arbitrator held on the evidence that what Gharunda said was not the whole truth. When the claimant was under cross examination it was suggested that he was overpaid by an amount of Rs.38,28,310/- but the sur- rejoinder statement given to the Arbitrator claimed an entirely different and far lower figure of Rs.14,94,310/-. In paragraph (i) at page 82 the Arbitrator said that he had dealt with these contentions only to show that Gharduna's reliance on a receipt of 2nd November 2007 did not reveal the whole truth. Gharunda had made different statements at different times. According to the Arbitrator, the amount ought to have been paid to Fernandez on Gharunda getting the occupation certificate for the Sale Wing which was obtained on 1st January 2007.
21. Gupte J noted that there was one difficulty regarding this claim because the agreement itself said that the balance Page 10 of 22 10th August 2022 Grace Gharunda v Naina Fernandez & Ors 15-OSAPP-536-IN-ARBP-1022-2016+.doc consideration was payable at the date of the occupation certificate in respect of the sale component. That occupation certificate had not been obtained even on the date of Gutpe J's order. Fernandez agreed to receive the amount only when the occupation certificate was issued by the MCGM. It is for this reason that Gupte J held that the amount was to be payable upon obtaining the occupation certificate of the Sale Wing, and not from 1st January 2007.
22. Again, there is nothing exceptionable about Gupte J's findings on Claim nos. 2 and 3. Indeed so far as Claim no.2 is concerned, Fernandez ultimately got less then what the Arbitrator granted. Overall, it must be seen that Fernandez received much less than his original claims at least regarding the claim for damages and the claim in regard to the balance installments.
23. As regard Claim no. 4 parties settled the disputes and obtained an order by 23rd January 2019. Parties agree that the reference in paragraph 3 of the 23rd January 2019 order is to claim No. 4 and not Claim No. 2.
24. We turn to a brief consideration of the law.
25. Amended Section 34 of the Arbitration and Conciliation Act reads thus:
34. Application for setting aside arbitral award.--
(1) Recourse to a Court against an arbitral award may be made only by an application for setting aside such award in accordance with sub-section (2) and sub-
section (3).
Page 11 of 2210th August 2022 Grace Gharunda v Naina Fernandez & Ors 15-OSAPP-536-IN-ARBP-1022-2016+.doc (2) An Arbitral award may be set aside by the Court only if--
(a) the party marking the application establishes on the basis of the record of the arbitral tribunal that
--
(i) a party was under some incapacity; or
(ii) the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or
(iii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or
(iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration:
Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside; or
(v) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in Page 12 of 22 10th August 2022 Grace Gharunda v Naina Fernandez & Ors 15-OSAPP-536-IN-ARBP-1022-2016+.doc conflict with a provision of this Part from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Part; or
(b) the Court finds that--
(i) the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or
(ii) the arbitral award is in conflict with the public policy of India.
Explanation 1.-- For the avoidance of any doubt, it is clarified that an award is in conflict with the public policy of India, only if,--
(i) the making of the award was induced or affected by fraud or corruption or was in violation of section 75 or section 81; or
(ii) it is in contravention with the fundamental policy of Indian law; or
(iii) it is in conflict with the most basic notions of morality or justice.
Explanation 2.-- For the avoidance of doubt, the test as to whether there is a contravention with the fundamental policy of Indian law shall not entail a review on the merits of the dispute.
Page 13 of 2210th August 2022 Grace Gharunda v Naina Fernandez & Ors 15-OSAPP-536-IN-ARBP-1022-2016+.doc (2-A) An arbitral award arising out of arbitrations other than international commercial arbitrators, may also be set aside by the Court, if the Court finds that the award is vitiated by patent illegality appearing on the face of the award;
Provided that an award shall not be set aside merely on the ground of an erroneous application of the law or by re-appreciation of evidence.
(3) An application for setting aside my not be made after three months have elapsed from the date on which the party making that application had received the arbitral award or, if a request had been made under section 33, from the date on which that request had been disposed of by the arbitral tribunal:
Provided that if the Court is satisfied that the applicant was prevented by sufficient cause from making the application within the said period of three months it may entertain the application within a further period of thirty days, but not thereafter.
(4) On receipt of an application under sub-section (1), the Court may, where it is appropriate and it is so requested by a party, adjourn the proceedings for a period of time determined by it in order to give the arbitral tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the opinion of arbitral tribunal will eliminate the grounds for setting aside the arbitral award. (5) An application under this section shall be filed by a party only after issuing a prior notice to the other party and such application shall be accompanied by an affidavit by the applicant endorsing compliance with the said requirement. (6) An application under this section shall be disposed of expeditiously, and in any event, within a period of one year Page 14 of 22 10th August 2022 Grace Gharunda v Naina Fernandez & Ors 15-OSAPP-536-IN-ARBP-1022-2016+.doc from the date on which the notice referred to in sub-section (5) is served upon other party."
(Emphasis added)
26. As the Section itself shows, the scope for challenge is exceedingly narrow. An erroneous application of law is not a ground to set aside an award. Re-appreciation of evidence by a Section 34 Court is impermissible. The amended provision has been authoritatively appreciated by the Supreme Court in Sangyong Engineering & Construction Co Ltd v National Highways Authority of India.1 The previous law including Associate Builders v Delhi Development Authority,2 ONGC Ltd v Western Geco International Ltd,3 Renusagar Power Co Ltd v General Electric Co 4 and other decisions were analysed, as was the effect of the statutory amendments. Sangyong Engineering effectively says:
(a) "Public policy of India", whether in Section 34 or Section 48 means the 'fundamental policy of Indian law' as explained in paragraphs 18 and 27 of Associate Builders. This is a return to the Renusagar position:
violation of (i) the fundamental policy of Indian law;
(ii) the interest of India; and (iii) justice or morality. 5
(b) The Western Geco expansion, i.e. the requirements of a judicial approach (as interpreted in Western Geco) and 1(2019) 15 SCC 131.
2(2015) 3 SCC 49.
3(2004) 9 SCC 263.
4 1994 Supp (1) SCC 644.
5 Ssangyong Engineering, supra, paragraphs 34 and 36.
Page 15 of 2210th August 2022 Grace Gharunda v Naina Fernandez & Ors 15-OSAPP-536-IN-ARBP-1022-2016+.doc placing 'unreasonableness' in the 'public policy' head, is now a thing of the past.6 To do so would be to enter impermissibly into a merit-based review of an arbitral award.
(c) Violations of principles of natural justice continue to be a ground for interference.7
(d) "The interest of India" does not survive as a ground for challenge.8
(e) The 'justice or morality' standard is now to be viewed as a test of whether the award violates 'the most basic notions of morality or justice', in accord with paragraphs 36 to 39 of Associate Builders -- the award must shock the judicial conscience to admit of interference on this ground.9 (f ) Domestic awards must now survive an additional test:
that set out in Section 34(2A), the 'patent illegality' standard. This must be a facially patent illegality. It cannot be an erroneous application of the law. A backdoor entry is not permitted: a ground not within 'the fundamental policy of Indian law' -- the contravention of a statute unlinked to public policy or 6 And therefore paragraphs 28 and 29 of Associate Builders would no longer obtain.
7 Arguably, though, this would not be on 'merits' strictly speaking, so much as a question of procedure and a violation of the equal-treatment standard.
8 Ssangyong Engineering, supra, paragraphs 35 and 36. 9 Ssangyong Engineering, supra, paragraph 35.Page 16 of 22
10th August 2022 Grace Gharunda v Naina Fernandez & Ors 15-OSAPP-536-IN-ARBP-1022-2016+.doc public interest -- cannot slither in under the ground of 'patent illegality'.10
(g) There is distinction between 'an erroneous application of the law' and an 'incorrect invocation of the law'. For instance, ignoring a binding decision of a superior court is not an erroneous application of the law. It is a ground of patent illegality, because it does not state the law correctly. But an award that correctly states the law is not vulnerable because its application of that correctly stated law to the contractual dispute is said (or even shown) to be erroneous.
(h) Patent illegality does not extend to a re-appreciation of evidence. Only an appellate court can do that. A Section 34 court cannot. It is not an appellate court. 11
(i) A mere contravention of substantive Indian law is no longer a ground to set aside an arbitral award.12
(j) But an award with no reasons is a violation of Section 31(3) of the Arbitration Act and constitutes a patent illegality. Paragraph 42.2 of Associate Builders stands.13
(k) The interpretation and construction of a contract is primarily for the arbitrator to decide. If the tribunal does so in a way no fair-minded or reasonable person would -- that is, the arbitrator's view is not even 10 Ssangyong Engineering, supra, paragraph 37. 11 Ssangyong Engineering, supra, paragraph 38. 12 Ssangyong Engineering, supra, paragraph 39. Therefore, paragraph 42.1 of Associate Builders no longer obtains.
13 Ssangyong Engineering, supra, paragraph 39.
Page 17 of 2210th August 2022 Grace Gharunda v Naina Fernandez & Ors 15-OSAPP-536-IN-ARBP-1022-2016+.doc minimally a possible one -- or if he wanders outside the contract and deals with mattes not assigned to him (for instance, in a dispute about a leave and license agreement considering whether a particular communication is defamatory and awarding damages or an injunction), then the award is vulnerable as a jurisdictional error within Section 34(2A).14
(l) 'Perversity', as understood in paragraphs 31 and 32 of Associate Builders, is no longer under the 'public policy of India' head. Yet it continues to exist. It is now re- positioned to fall under the 'patent illegality appearing on the face of the award' head. This would include: a finding based on no evidence at all; an award which ignores vital evidence in arriving at its decision; or, say, a finding based on documents taken behind the back of the parties.15
(m) The patent illegality standard is unavailable for international commercial arbitrations.16
(n) Section 34(2)(a) does not permit a challenge to an arbitral award on merits.17 14 Ssangyong Engineering, supra, paragraph 40. 15 Ssangyong Engineering, supra, paragraph 41. 16 Ssangyong Engineering, supra, paragraph 42. 17 Ssangyong Engineering, supra, paragraphs 43-48.
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27. In Union of India v Recon,18 the decision of the Supreme Court in Sangyong Engineering has been further analysed to cull out the emergent principles. Paragraph 17.4 reads thus:
17.4 This yields the following result:
(i) A lack of a 'judicial approach', being the Western Geco expansion, is not available per se as a ground of challenge.
(ii) A violation of the principles of natural justice is a ground for challenge as one under Section 18 read with Section 34(2)(a)(iii) -- that is to say, not under the 'fundamental policy' head nor the 'patent illegality' head, but distinctly under this sub-section.19
(iii) A lack of reasons is a patent illegality under Section 34(2-A).
(iv) In interpreting the contract, the arbitral view must be fair-minded and reasonable. If the view is one that is not even possible, or if the arbitrator wanders beyond the contract, that would amount to a 'patent illegality'.
(v) 'Perversity' as understood in Associate Builders, is now dishoused from 'fundamental policy' (where Western Geco put it), and now has a home under 'patent illegality'. This includes:
(A) a finding based on no evidence at all;
182020 SCC OnLine Bom 2278 : (2020) 6 Mah LJ 509 : (2020) 6 AIR Bom R 613 : (2021) 1 Bom CR 167 19 34(2)(a)(iii): the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case.
Page 19 of 2210th August 2022 Grace Gharunda v Naina Fernandez & Ors 15-OSAPP-536-IN-ARBP-1022-2016+.doc (B) an award that ignores vital evidence;
and (C) a finding based on documents taken behind the back of the parties.
......
Combining (iv) and (v) above, therefore, while the explicit recognition or adoption of the Wednesbury unreasonableness standard (introduced in Western Geco) is probably done away with, there is even yet a requirement of reasonableness and plausibility in matters of contractual interpretation. If the interpretation of the contract is utterly unreasonable and totally implausible -- the view taken is not even possible -- a challenge lies. Therefore: an award that was impossible either in its making (by ignoring vital evidence, or being based on no evidence, etc) or in its result (returning a finding that is not even possible), then a challenge on the ground of 'perversity' lies under Section 34(2-A) as a dimension of 'patent illegality'.
28. Paragraph 29 of the Supreme Court decision in Delhi Airport Metro Express Pvt Ltd v Delhi Metro Rail Corporation Ltd20 says:
29. Patent illegality should be illegality which goes to the root of the matter. In other words, every error of law committed by the Arbitral Tribunal would not fall within the expression "patent illegality". Likewise, erroneous application of law cannot be categorised as patent illegality. In addition, contravention of law not linked to public policy or public interest is beyond the scope of the expression "patent illegality". What is prohibited is for Courts to reappreciate evidence to conclude that the award suffers from patent illegality appearing on the face of the award, as Courts do not sit in appeal against 20(2022) 1 SCC 131.
Page 20 of 2210th August 2022 Grace Gharunda v Naina Fernandez & Ors 15-OSAPP-536-IN-ARBP-1022-2016+.doc the arbitral award. The permissible grounds for interference with a domestic award under Section 34(2- A) on the ground of patent illegality is when the arbitrator takes a view which is not even a possible one, or interprets a clause in the contract in such a manner which no fair-minded or reasonable person would, or if the arbitrator commits an error of jurisdiction by wandering outside the contract and dealing with matters not allotted to them. An arbitral award stating no reasons for its findings would make itself susceptible to challenge on this account. The conclusions of the arbitrator which are based on no evidence or have been arrived at by ignoring vital evidence are perverse and can be set aside on the ground of patent illegality. Also, consideration of documents which are not supplied to the other party is a facet of perversity falling within the expression "patent illegality". (Emphasis added)
29. If the scope for interference with an Award is limited, as the Supreme Court says that the scope for interference in a Section 37 Appeal is even more restricted. We may profitably refer to the decision of a three-judge Bench of the Supreme Court in UHL Power Company Limited v State of Himachal Pradesh.21 In paragraphs 16 and 17, the Supreme Court said:
16. As it is, the jurisdiction conferred on courts under Section 34 of the Arbitration Act is fairly narrow, when it comes to the scope of an appeal under Section 37 of the Arbitration Act, the jurisdiction of an appellate court in examining an order, setting aside or refusing to set aside an award, is all the more circumscribed. ... ...
(Emphasis added) 21(2022) 4 SCC 116.
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30. We find no merit in the Appeal. There is no infirmity in the impugned order.
31. The Appeal is dismissed.
32. In the facts and circumstances of the case, there will be no orders as to costs.
(Gauri Godse, J) (G. S. Patel, J)
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