Bangalore District Court
A Srinivasan vs Mallanagouda B Patil on 4 November, 2024
KABC170005642024
IN THE COURT OF LXXXV ADDL. CITY CIVIL &
SESSIONS JUDGE, AT BENGALURU (CCH-86)
(Commercial Court)
THIS THE 4th DAY OF NOVEMBER 2024
PRESENT:
SRI.ARJUN. S. MALLUR. B.A.L.LL.B.,
LXXXV ADDL. CITY CIVIL & SESSIONS
JUDGE,
BENGALURU.
Com.A.P.NO.34/2024
BETWEEN:
1. Mr. A Srinivasan,
S/o Arunachala Reddy,
Aged about 79 years,
R/At 274-C, Thuraiyur Road,
Perambalur - 621212
2: Shree Basaveshwar Sugars Limited,
A Company incorporated under the provisions of
the Companies Act, 1956,
Having its Registered office at:
No.6, Mallikarjun Badavane,
Managuli Road, Ganesh Nagar,
Bijapur, Karnataka - 586109
Represented herein by its Managing Director
Com.A.P.No.34/2024
Mrs. S Kathivaran
: PLAINTIFF/APPLICANT
(Represented by Sri. George Joseph, Advocate)
AND
1. Mr. Mallanagouda B Patil
S/o Mr. Basanagouda Patil,
Aged about 59 years,
R/At 31, Akkamahadevi Road,
Bijapur, Karnataka - 586101
Also At No.1,
Ali Asker Road,
Bengaluru - 560052
2:Honble Justice T S Thakur,
Former Chief Justice Of India,
R/At No.A-160,
New Friends Colony,
New Delhi - 11002.
DEFENDANTS/CLAIMANTS
(R-1 by Smt. Anuparna Bordoloi. Advocate
R-2 Sole Arbitrator)
Date of Institution of the 23-02-2024
suit
Nature of the suit (suit on Application under Sec.34
pronote, suit for declaration of Arbitration &
& Possession, Suit for Conciliation Act, 1996
injunction etc.)
2
Com.A.P.No.34/2024
Date of commencement of
recording of evidence ---
Date on which judgment 04-11-2024
was pronounced
Total Duration Year/s Month/s Day/s
00 08 11
(ARJUN. S. MALLUR)
LXXXV Addl.City Civil & Sessions Judge,
Bengaluru.
JUDGMENT
Application under Sec.34 of Arbitration and Conciliation Act 1996 seeking setting aside of the award passed by the Learned Sole Arbitrator dated 07.08.2023 in the matter of Mallanagouda B Patil Vs. A. Shrinivasa and others.
2. Facts in brief is as under:-
The petitioner No.2 company came to incorporated by respondent No.1 and others on 10.01.2021 for the purpose of manufacturing and distributing sugar and related products. On 14.09.2010 the petitioner No.1, respondent No.1 and petitioner No.2 company entered 3 Com.A.P.No.34/2024 into a share subscription and share holders agreement(herein after referred a share holder agreement). Under the said agreement the respondent No.1 was classified as promoter whereas petitioner No.1 was termed as investor. The respondent No.1 was also said to be representing the promoters group i.e., share holders of the petitioner No.2 company. Main object of the share holder agreement was to facilitate the petitioner No.1 taking over the affairs of petitioner No.2 by purchasing the equity shares held by respondent No.1 and other share holders. Firstly 200 equity shares representing 80% of the companies equity was to be transferred to petitioner No.1 upon payment of share subscription fee of Rs.20,00,000/-. The same was achieved on 24.09.2010. The share holder agreement further stipulated terms for facilitating company to transfer of ownership. The main crux of the agreement is with respect to promoters groups exercise of its 'put option'. As per clause 7.2.2 of the share holder agreement the petitioner No.1 had the absolute obligation to purchase all the share held by the promoters group from 30.06.2012 on wards, as per the corresponding exit values. The exit values were contingent upon the period when the put option was 4 Com.A.P.No.34/2024 exercised by the promoters group which is given in a tabular form as under:
Sl.No. Purchase Period Exit Value 1
From June 30, 2012 to June 29, 2013 Rs. 23, 00, 00, 000 2 From June 30, 2013 to June 29, 2014 Rs. 26,00, 00, 000 3 From June 30, 2014 to June 29, 2015 Rs. 30, 00, 00, 000 4 From June 30, 2015 to June 29, 201 6 Rs. 40,00, 00, 000 5 From June 30, 2016 to June 29, 2017 Rs. 52,00, 00, 000 6 From June 30, 2017 to June 29, 2018 Rs. 64,00, 00, 000 7 From June 30, 2018 to June 29, 2019 Rs. 74,00, 00, 000 8 From June 30, 2019 to June 29, 2020 Rs. 85,00, 00, 000 Under clause No.2 of clause No.7.2 of the share holder agreement the exercise of the put option was as under:
Firstly anytime after 31.12.2011 the promoter group was entitled to issue a put notice of not less than 5 Com.A.P.No.34/2024 180 days calling upon the investor to purchase all the shares held by the promoter group.
Secondly withing 30 days of receipt of put notice the investor was to notify the date time and venue for conclusion of sale and purchase of put shares which shall not be more than 180 days. It was also clarified that if the date fell within the next purchase period then the exit value payable would be as per that purchase period.
The promoter group exercised its put option under letter dated 03.08.2013. Vide letter dated 21.09.2004 the petitioner No.1 sought extension of time up to 30.06.2015. The same was accepted by the first respondent under letter dated 21.04.2014. However as the purchase of put shares did not materialize by 30.06.2015 and a meeting was convened in August 2015 between promoter group and investors and in the said meeting it was resolved that put shares would be purchased between 30.06.2015 to 29.06.2016 and the corresponding exit value would be Rs.40 crores. Therefore by consent the put option stood crystallized and also the exit value at Rs.40 crores. Thereafter 6 Com.A.P.No.34/2024 commencing from 04.02.2016 the investor made payment amounting to Rs.15.90 crores to the promoter group. However due to severe financial crunch it was not possible to pay the total amount of Rs.40 crores before 29.06.201. the petitioner No.1 issued a letter dated 02.0602016 to the promoters group agreeing to make good the balance amount of Rs.24.10 crores and also under took to pay interest at 12% per annum on the delayed payments. However to the said letter the promoters group issued an untenable reply dated 17.06.2016 which was followed by a legal notice dated 25.09.2017 making untenable demands for payment of exit value subsequent to the purchase period of 30.06.2015 to 29.06.2016.
3. On account of the differences with regard to purchase of the put shares the matter came to be referred for arbitration with the respondent No.2 being appointed as the Sole Arbitrator. Before the Learned Arbitrator in the claim statement the respondent No.1 sought for specific performance of share holder agreement and a declaration that petitioner No.1 shall pay exit value of Rs.85 crores. The same was denied by the petitioner in the statement of defense. After 7 Com.A.P.No.34/2024 considering the evidence on record the Learned Arbitrator vide impugned award held that the respondent No.1 is entitled to the exit value of Rs.85 crores with interest thereon and the net amount payable to the first respondent was held to be Rs.52,71,01,000/- together with Rs.30,00,000/- as the cost of arbitration.
4. Aggrieved by the impugned award the petitioner who are respondents before the Learned Arbitrator have filed this application challenging the award under the following grounds:
a. It is contended that the Learned Arbitrator failed to consider the fact that the share holder agreement is insufficiently stamped. It is submitted that the share holder agreement was liable to be stamped as per article 5(c)(ii) under Karnataka Stamp Act 1957 but stamp duty paid is only Rs.200/- which is insufficiently stamped. It is submitted that the Learned Arbitrator grossly erred in allowing the insufficiently stamped document in evidence and has grossly erred in passing the award based on an inadmissible document in law.8
Com.A.P.No.34/2024 b. It is further contended by petitioner that the Learned Arbitrator has failed to observe that there was no resolve for settlement of dispute by way of arbitration and that the dispute raised under the share holder agreement was non-arbitrable. It is submitted that the claimants were seeking for specific performance of the share holder agreement and the relief of declaration which could only be granted by competent Civil Court and that the Learned Arbitrator has failed to consider that the matter in issue was not fit for arbitration.
c. It is further contended that the Learned Arbitrator has failed to observe that the claim raised by the claimants were barred by limitation. It is contended that the put option exercised by the claimant was on 03.08.2013 but the arbitration has been invoked under the notice dated 21.02.2018. It is submitted that the period of limitation is 3 years prescribed under Article 58 of the Limitation Act and the arbitration should have been invoked within 3 years commencing from 03.08.2013 and therefore the claim is hopelessly barred by time which the Learned Arbitrator failed to consider.9
Com.A.P.No.34/2024 d. It is further contended that in-spite of specific defense raised in the statement of defense the Learned Arbitrator has failed to observe the promoter group were not signatories to the arbitration agreement and therefore the dispute referred was beyond the scope of arbitration clause. It is contended that the Learned Arbitrator has failed to observe the fact that the arbitration would be applicable only with respect to the signatories of the agreement and will not cover the persons who have not signed the agreement.
e. It is further contended by the petitioners that the Learned Arbitrator has acted beyond and without jurisdiction due to arbitrary and erroneous interpretation of the share holder agreement. It is contended that the Learned Arbitrator has grossly misinterpreted clause 7.2.4 and has passed the award. It is submitted that the Learned Arbitrator failed consider the fact that the exit value was crystallized at Rs.40 crores as per the purchase period No.4 but the arbitrator has grossly misunderstood the same and awarded Rs. 85 crores as per the last purchase period. It is submitted that the Learned Arbitrator has totally misread the terms in clause 7.2.4 which did not provide 10 Com.A.P.No.34/2024 for a single transaction but it was inclusive all the multiple transactions. It is submitted that the Learned Arbitrator failed to consider the fact that neither clause 7.2.2 nor 7.2.4 provide that the rates of the subsequent purchase period will be applicable for the exit value. It is submitted that the Learned Arbitrator has not considered the fact that once the put option is exercised and there cannot be invoking of the put option repeatedly and therefore the purchase period available for the date on which put option is exercised has to be considered for payment of the amount and not the last purchase period. It is submitted that the Learned Arbitrator by giving a different interpretation to the clause 7.2.4 has tried to rewrite the terms of the contract which is not permissible under law.
On the above grounds the claimant seeks for setting aside the award.
5. Upon service of notice the respondent No.1 has appeared and filed his detailed statement of objections wherein apart from denying all the grounds urged in the petition the respondent would contend that the share purchase agreement is properly stamped and that 11 Com.A.P.No.34/2024 article 5(c)(ii) would be applicable only when there is purchase or sale of the shares but under the said agreement there was no purchase or sale of shares but it was only an agreement for sale of the shares at a future point of time. It is submitted that the required stamp duty was under article 5(i) of the Karnataka Stamp Act which has been duly paid by the respondent No.1. It is further contended that clause 8 of the share holders agreement specifically bars the jurisdiction of the Civil Courts and provides for resolution of the disputes by way of arbitration and therefore even though the relief of specific performance is claimed the jurisdiction lies with the arbitrator and not before the Civil Court. The first respondent would further contend that the cause of action for the claim first arose on 02.06.2016 when the petitioner issued a letter expressing inability to pay and same is followed by letter dated 17.06.2016 when the promoter group called upon to make the payments, 25.09.2017 and 15.11.2017 when the legal notice was issued to which a reply was sent and on 31.01.2018 when the last payment was made and further on 21.02.2018 when the arbitration clause was invoked. It is submitted that the claim made by the claimants is well within the 12 Com.A.P.No.34/2024 period of limitation under article 58 of the Limitation Act.
The respondent No.1 would further submit that the promoter group was represented by respondent No.1 who is a signatory to the share subscription agreement. It is submitted that there was no requirement for all the share holders to sign the agreement and further the promoter group has filed separate affidavits stating that they have no objection for the claimant i.e., respondent No.1 to represent them in the proceedings. Further all the communications were issued on behalf of the promoter group and that petitioners were aware as to who constituted the promoter group and therefore the contention that all promoters are not signatories to the agreement and it does not bind them cannot be sustained. It is further submitted that the Learned Arbitrator by detailed reasoning has held that respondent No.1 represents the promoter group. It is further contended by the first respondent that the arbitrator has passed a well reasoned award and under sec.34 this Court cannot sit in appeal over the award made and further even if the arbitrator has interpreted the terms of the contract in a particular manner the 13 Com.A.P.No.34/2024 same cannot be called in question by the Courts under Sec.34 of the Act. It is further submitted t hat as per the judgment of the Apex Court in Reliance Infrastructure vs. State of Goa, it has been observed that the Court cannot undertake re- appreciation of evidence in a petition under Sec.34 of the Act and that the Courts must show restraint in examining the validity of the award and only when there is a patent illegality or perversity in passing of the award it should be interfered with. It is submitted that the award can be interfered only when there is breach of most basic notions of justice and that the award passed would shock the conscience of the Court and it is not even a possible view that can be raised. The respondent No.1 has denied all other averments and has sought for rejecting the application with exemplary costs.
6. Heard the learned Counsel appearing for the petitioner and the learned counsel appearing for the respondent No.1 and perused the entire material on record. The counsel for respondent No.1 has also filed written arguments with citations.
14Com.A.P.No.34/2024
7. The points that arise for my consideration are as under:
(1) Whether the petitioners substantiates that impugned award passed by the Learned Sole Arbitrator is in breach of fundamental policy of India and suffers from patent illegality appearing on the face requiring it to be set aside?
(2) What order?
8. My finding on the above Points are: -
Point No.1: In the Negative.
Point No.2: As per final order for the following:
REASONS
9. POINT NO.1:- The petitioners have challenged the impugned award firstly on the ground that the share holders agreement is not sufficiently stamped and that the Learned Arbitrator has not considered the said aspect and has awarded the amount based on insufficiently stamped document. The Learned Arbitrator during the course of Arbitration Proceedings has not framed any issues with regard to the share 15 Com.A.P.No.34/2024 holders agreement being insufficiently stamped. In fact there is not material on record regarding the claimant having disputed the aspect of share holders agreement being insufficiently stamped. The original records which have been summoned and on going through the statement of defense made before the Learned Arbitrator also there is no ground alleging that the share holders agreement is insufficiently stamped. It is the contention of the petitioner is that the stamp duty payable on the share holder agreement is as per article 5(c)(ii). The petitioner would contend that as per the exit value mentioned in the share holders agreement the stamp duty is required to be paid. Per contra the respondent would submit that stamp duty payable under article 5(c)(ii) of the Karnataka Stamp Act would arise when there is either purchase or sale of the shares under the agreement. But in the present case there is only mention about sale of purchase of shares at future point of time and therefore the stamp duty payable is under article 5(i) which is Rs.200/- and the same has been paid under the agreement. When the petitioner at first instance has not raised objections as to the payment of stamp duty he cannot be permitted to raise the same as a ground of challenge to the award 16 Com.A.P.No.34/2024 under Sec.34 of the Act. Therefore the said ground urged by the petitioner cannot be sustained.
10. The next ground under which the petitioner challenges the award is that the claimant is seeking for specific performance of the share holders agreement and also is seeking a declaratory relief which are subject matters of a suit before a Court of competent jurisdiction and those are not arbitrable matters. The Learned Counsel for the respondent has refuted the said contention by arguing that clause 14 of the share purchase agreement provide for seeking specific reliefs under the agreement and further under clause No.30 any disputes arising under the said agreement has to be resolved through arbitration. Therefore the said contention of the petitioner that the claim raised before the Learned Arbitrator was not an arbitrible claim and the arbitral tribunal had no jurisdiction to grant any specific relief cannot be sustained. Moreover as in the statement of defense the petitioners have not specifically objected for the Learned Arbitrator in exercising jurisdiction for granting relief of specific performance cannot permitted to be raised in an application 34 of the Act.
17Com.A.P.No.34/2024
11. The next ground that has been urged in the petition is that the claim raised by the respondent before the Learned Arbitrator is hopelessly barred by time. It is the contention of the petitioner that the put option for purchase of the equity shares was first exercised by respondent No.1 on 03.08.2013. However, the notice invoking arbitration is issued nearly 5 years later on 21.02.2018 which is beyond the period of 3 years as contemplated under article 58 of the Limitation Act and therefore the claim is hopelessly barred by time. Responding to the said argument the Learned Counsel for the first respondent would vehemently submit that considering the relevant dates and events the first letter is issued on02.06.2016 and in response to the meeting held in August 2015 where it was amicably resolved to purchase the put shares between 30.06.2015 to 29.06.2016 at an exit value of Rs.40 lakhs. Pursuant to the said meeting on 04.02.2016 the petitioner No.1 has made a payment of Rs.15.90 crores. Subsequently he has defaulted and on 02.06.2016 a letter is issued wherein towards the balance amount of 24.10 crores the same would be paid with interest of 12% p.a. Therefore period of limitation begins on 02.06.2016. The Learned Arbitrator 18 Com.A.P.No.34/2024 has raised issue No.1 with regard to the limitation and after considering the materials and evidence on record has recorded an observation that the last payment has been made on 31.01.2018 before which the arbitration clause has been invoked under the notice dated 21.01.2018. Therefore period of limitation has extended after the put option came to be exercised by the claimant and after arbitration proceedings were invoked there has been a payment of Rs.21,87,00,000/- in installments. The last payment being made on 31.01.2018 does extend the period of limitation to run and therefore claim made before the Learned Arbitrator is well within the period of limitation.
12. The next argument that has been put forth by the petitioner is that as all the promoters are not signatories to the share holders agreement the arbitral tribunal could not have entertained the claim and therefore the award is vitiated and cannot be sustained. In reply the Learned Counsel for the first respondent contended that before the Learned Arbitrator evidence and communications were presented which indicated that the entire promoter group acted in concert and consented to be represented by the first respondent.
19Com.A.P.No.34/2024 The Learned Arbitrator while answering issue Nos. 2 and 3 at page No.27 to 56 of the award has dealt in detail with regard to the said contention and observed that all share holders or promoters were not required to sign the share holder agreement and it is sufficient if the respondent No.1 representing the promoters group would sign the agreement. Therefore the said contention put forth by the Learned Counsel for the petitioner does not merit any consideration.
13. The last argument or in fact main argument that has been put forth by the Learned Counsel for the petitioner is that the Learned Arbitrator has wrongly interpreted or misinterpreted clause 7.2.3 and 7.2.4 of the share holder agreement and therefore the award is rendered unsustainable. To ascertain whether the said contention warrants any merit it would be just and proper to refer to clauses 7.2.3 and 7.2.4 of the share holder agreement. The same reads as under:
"7.2.3: The Promoter Group may at any time after December 31, 2011, give a notice of not less thąn 180(one hundred and eighty days to the Investor ("Put Notice) calling upon the Investor to purchase all the Shares held by the Promoter Group ("Put Shares") 20 Com.A.P.No.34/2024 7.2.4: The Investor shall within 30 (Thirty)days From the date of the Put Notice notify the Promoter Group of the date, time and venue for the conclusion of the sale and purchase or the Put-Shares ("Put Reply Notice")which shall not in any event, exceed the aforesaid 180 (one hundred and eighty) day period. It is hereby clarified that if such dates falls within the next Purchase Period, then the amount payable will be as per that Pruchase Period. On such date and at such time and venue, as stated in the Put Reply Notice, the Promoter Group will deliver to the investor, the duly executed share transfer forms and the relevant share certificates for transfer of the Put Shares together with all other documents and deeds thàt may be required by law for the sale of such Put Shares The investor shall simultaneously pay to the promoter Group, the purchase consideration or the put shares which will be determined in accordance with the exit Values set out in the table in Clause 7.2.2 above."
14. The Counsel for the petitioner would vehemently submit that in the meeting held in August 2015 there was an amicable settlement that put shares would be purchased as per the purchase period at Sl.No.4 of the tabular form i.e., from 30.06.2015 to 29.06.2016 and the exit value being Rs.52 crores. It is not in dispute that respondent No.1 had agreed for the said amicable 21 Com.A.P.No.34/2024 resolution. However it was incumbent upon the petitioner No.1 to make the payments as agreed within the said purchase period No.4. After commencement of the said period only on 04.02.2016 payment of Rs.15.90 crores has been paid and the petitioner had agreed to pay the balance of Rs. 24.10 crores with interest at 12%. Admittedly the petitioner has failed to make such payment. Clause 7.2.4 provides that if the date, time and venue for sale and purchase of put shares falls within the next purchase period the amount payable will be as per that purchase period and not the purchase period under which it was initially agreed to. In other words if the petitioner had failed to make payments within the purchase period No.4 and the date of payment falls within the subsequent purchase period the exit value will be that which is specified for the subsequent period and not for the previous period. The Learned Arbitrator has extensively dealt with the evidence on record and also considered all the submissions and has clearly observed that the exit value payable would be last period as the respondent had defaulted in making payments initially agreed for purchase period No.4. Moreover as held by the Hon'ble Apex Court in National Highway Authority of India 22 Com.A.P.No.34/2024 vs. M/s Hindusthan Constructions Company Ltd. interpretation of the terms of the contract by the Learned Arbitrator cannot be a ground on which the award can be set aside. It has been observed that the arbitrator is at liberty to construe the terms of the contract or agreement in relation to the dispute before him and can raise required inferences and arrive at a conclusion which cannot be found in fault in an application under Sec.34 of the Act. Therefore the said contention put forth by the Learned Counsel for the petitioner cannot be sustained.
15. The Learned Counsel for the first respondent would further submit that the grounds with regard to breach of fundamental policy India has a narrow scope and that in Ssangyong Engineering and Construction Company Limited vs. National Highway Authority of India(NHAI), (2019) 15 SCC 131 the Supreme Court has observed that fundamental breach of public policy would be attracted when the award is in such nature which is in fundamental violation of basic notions of justice and fairness and it shocks the conscience of the Court. Otherwise an award which is passed 23 Com.A.P.No.34/2024 following due process and the principles of natural justice need not be interfered with.
16. The Learned Counsel for the first respondent would further submit that as per the 2015 amendment an award can also be set aside where there is patent illegality appearing on the face of it. However the Hon'ble Apex Court in the decision Reliance Infrastructure vs. State of Goa (2024)1 SCC 479 has observed that the scope of patent illegality does not extent to mere legal errors or different interpretation of the contract. It is observed that to constitute patent illegality the arbitral tribunal must have acted in an unreasonable manner that no fair minded person could have arrived at such conclusion. The Learned Counsel for first respondent would vehemently submit that the Apex Court in International INC vs. Burn Standard Co. Ltd.(2006) 11 SCC 181 has observed that under sec.34 of the Act the Court cannot function as an appellate authority over the tribunal and resort to reassessment of the evidence and interference can be justified only when there is breach of principles of natural justice and patent illegality effecting the very award.
24Com.A.P.No.34/2024
17. The Learned Counsel for the first respondent has relied upon the judgment of the Apex Court in (2024) 2 SCC 613 M/s Hindusthan Constructions Company Ltd vs. National Highway Authority of India wherein with respect to scope and application of Sec.34 of the Arbitration and Conciliation Act 1996 at para 22 to 24 of the judgment it has been observed as under:
The prevailing view about the standard of scrutiny- not judicial review, of an award, by persons of the disputants' choice being that of their decisions to stand- and not interfered with, [save a small area where it is established that such a view is premised on patent illegality or their interpretation of the facts or terms, 2017 (1) SCR 798 2021 (5) SCR 984 perverse, as to qualify for interference, courts have to necessarily chose the path of least interference, except when absolutely necessary]. By training, inclination and experience, judges tend to adopt a corrective lens; usually, commended for appellate review. However, that lens is unavailable when exercising jurisdiction under Section 34 of the Act. Courts cannot, through process of primary contract interpretation, thus, create pathways to the kind of review which is forbidden under Section 34. So viewed, the Division Bench's approach, of appellate review, twice removed, so to say 25 Com.A.P.No.34/2024 [under Section 37], and conclusions drawn by it, resulted in displacing the majority view of the tribunal, and in many cases, the unanimous view, of other tribunals, and substitution of another view. As long as the view adopted by the majority was plausible- and this court finds no reason to hold otherwise (because concededly the work was completed and the finished embankment was made of composite, compacted matter, comprising both soil and fly ash), such a substitution was impermissible.
23. For a long time, it is the settled jurisprudence of the courts in the country that awards which contain reasons, especially when they interpret contractual terms, ought not to be interfered with, lightly. The proposition was placed in State of UP v Allied Constructions17:
"[..] It was within his jurisdiction to interpret Clause 47 of the Agreement having regard to the fact-situation obtaining therein. It is submitted that an award made by an arbitrator may be wrong either on law or on fact and error of law on the face of it could not nullify an award. The award is a speaking one. The arbitrator has assigned sufficient and cogent reasons in support thereof.
2003 Supp (2) SCR 55 Interpretation of a contract, it is trite, is a matter for arbitrator to determine (see M/s. Sudarsan Trading Co. v. The Government of Kerala, AIR (1989) SC 26 Com.A.P.No.34/2024
890). Section 30 of the Arbitration Act, 1940 providing for setting aside an award is restrictive in its operation. Unless one or the other condition contained in Section 30 is satisfied, an award cannot be set aside. The arbitrator is a Judge chosen by the parties and his decision is final. The Court is precluded from reappraising the evidence.
Even in a case where the award contains reasons, the. interference therewith would still be not available within the jurisdiction of the Court unless, of course, the reasons are totally perverse or the judgment is based on a wrong proposition of law"
24. This enunciation has been endorsed in several cases (Ref McDermott International Inc. v. Burn Standard Co. Ltd18). In MSK Projects (I) (JV) Ltd v State of Rajasthan19 it was held that an error in interpretation of a contract by an arbitrator is "an error within his jurisdiction". The position was spelt out even more clearly in Associate Builders (supra), where the court said that:
"[..] if an arbitrator construes a term of the contract in a reasonable manner, it will not mean that the award can be set aside on this ground. Construction of the terms of a contract is primarily for an arbitrator to decide unless the arbitrator construes the contract in such a way that it could be said to be something that no fair minded or reasonable person could do."27
Com.A.P.No.34/2024 He also relied upon the judgment of the Hon'ble Madras High Court reported in 2022 SCC online Mad 4702, Macro Marvel Projects Ltd., vs. J. Vengatesh and others, wherein it has been observed in para 24 as under:
24. The grounds for challenge of the arbitral award prior to the amendment had been delineated and explained by the Hon'ble Supreme Court of India in Associate Builders case (cited Supra), where under, the concept of 'Public Pollicy of India' was explained under the heads (I) Fundamental Policy of Indian Law; (ii) Interest of Inida; (iii) Justice and Morality; and (iv) Patent Illegality in paragraph Nos. 27 to 45 which clearly lay down each and every ground that was available for the Court to interfere with the decision of an Arbitral Tribunal.
He also relied upon the judgment of Apex Court in 2006 11 SCC 181, Mcdermott International Inc. vs. Burn Standard Com. Ltd. and others. wherein similar observations have been made with regard to scope and interference in arbitral awards.
The Learned Counsel for the first respondent also has refereed to judgment of the Apex Court in Civil Appeal No.2903/2023, Konkan Railway 28 Com.A.P.No.34/2024 Corporation Limited vs. Chenab Bridge Project Undertaking, wherein at para 15 of the judgment it has been observed as under:
15. Therefore, the scope of jurisdiction under Section 34 and Section 37 of the Act is not akin to normal appellate jurisdiction.9 It is well-settled that courts ought not to interfere with the arbitral award in a casual and cavalier manner. The mere possibility of an alternative view on facts or interpretation of the contract does not entitle courts to reverse the findings of the Arbitral Tribunal.10 In Dyna Technologies Private Limited v.
Crompton Greaves Limited (2019) 20 SCC 1, this Court held:
"24. There is no dispute that Section 34 of the Arbitration Act limits a challenge to an award only on the grounds provided therein or as interpreted by various courts. We need to be cognizant of the fact that arbitral awards should not be interfered with in a casual and cavalier manner, unless the court comes to a conclusion that the perversity of the award goes to the root of the matter without there being a possibility of alternative interpretation which may sustain the arbitral award. Section 34 is different in its approach and cannot be equated with a normal appellate jurisdiction. The mandate under Section 34 is to respect the finality of the arbitral award and the party autonomy to get 29 Com.A.P.No.34/2024 their dispute adjudicated by an alternative forum as provided under the law. If the courts were to interfere with the arbitral award in the usual course on factual aspects, then the commercial wisdom behind opting for alternate dispute resolution would stand frustrated.
25. Moreover, umpteen number of judgments of this Court have categorically held that the courts should not interfere with an award merely because an alternative view on facts and interpretation of contract exists. The courts need to be cautious and should defer to the view taken by the Arbitral Tribunal even if the reasoning provided in the award is implied unless such award portrays perversity unpardonable under Section 34 of the Arbitration Act."
He has placed reliance of another decisions of the Apex Court in (2019) 20 SCC 1, Dyna Technologies Pvt. Ltd. vs. Crompton Greaves Ltd., wherein it has been observed as under:
Arbitration and Conciliation Act, 1996 - Ss. 31(3) and 34 - Reasons for passing an award Necessity of Proper, intelligible and adequate reasoning in an award Requirement of - (A) Awards based on impropriety or perversity in reasoning, and (B) Awards with inadequate reasoning Manner in which awards of Type (A) and awards of Type (B) to be dealt with 30 Com.A.P.No.34/2024 under S.34- Distinguished-Held, the passing of a reasoned award is not an empty formulation under the Arbitration Act Further, the requirements of a reasoned order are that the reaso ns/ reasoning should be:proper, intelligible and adequate Court while exercising jurisdiction under S. 34 has to adjudicate the validity of an award based on the degree of particularity of reasoning required having regard to the nature of issues falling for consideration - Further, the degree of particularity cannot be stated in a precise manner as the same would depend on the complexity of the issues in the facts and circumstances of each case- Further, held, only when there is complete perversity in the reasoning, can the award be challenged under the provisions of S. 34- Further, the power vested under S. 34(4) to cure defects can be utilized in cases where the arbitral award does not provide any reasoning or if the award has some gap in the reasoning or otherwise and that can be cured so as to avoid a challenge
35. When we consider the requirement of a reasoned order three characteristics of a reasoned order can be fathomed. They are:
proper, intelligible and adequate. If the reasoning in the order are improper, they reveal a flaw in the decision making process. If the challenge to an award is based on impropriety or perversity in the reasoning, then it can be challenged strictly on the grounds provided under Section 34 of the 31 Com.A.P.No.34/2024 Arbitration Act. If the challenge to an award is based on the ground that the same is unintelligible, the same would be equivalent of providing no reasons at all. Coming to the last aspect concerning the challenge on adequacy of reasons, the Court while exercising jurisdiction under Section 34 has to adjudicate the validity of such an award based on the degree of particularity of reasoning required having regard to the nature of issues falling for consideration. The degree of particularity cannot be stated in a precise manner as the same would depend on the complexity of the issue. Even if the Court comes to a conclusion that there were gaps in the reasoning for the conclusions reached by the Tribunal, the Court needs to have regard to the documents submitted by the parties and the contentions raised before the Tribunal so that awards with inadequate reasons are not set aside in casual and cavalier manner. On the other hand, ordinarily unintelligible awards are to be set aside, subject to party autonomy to do away with the reasoned award. Therefore, the courts are required to be careful while distinguishing between inadequacy of reasons in an award and unintelligible awards.
The Leaned Counsel for the first respondent has also placed reliance on the judgment of the Apex Court in 2019 15 SCC 131 Ssangyong Engineering and Construction Company Limited vs. National 32 Com.A.P.No.34/2024 Highway Authority of India(NHAI) which has been referred supra.
18. Upon considering the observation made by the Apex Court and the Hon'ble Madras High Court in the decisions referred supra and on examining the award passed by the Learned Sole Arbitrator there is no hesitation to hold that the Learned Sole Arbitrator has extensively dealt with the material and evidence produced on record and has passed the award which does not suffer from any infirmities to conclude that it is breach of any fundamental policy of India or there is any patent illegality appearing on the face of it requiring this Court to set aside the same under Sec.34 of the Act. Accordingly, I answer Point No.1 in the Negative.
19. POINT NO.2:- For the aforesaid reasons, I proceed to pass the following.
ORDER Application filed by the petitioners under Sec.34 of Arbitration and 33 Com.A.P.No.34/2024 Conciliation Act,1996 is dismissed with costs.
(Dictated to the Stenographer Grade-III, transcribed by her, corrected and then pronounced by me in open court on this the 4 th day of November, 2024) Digitally signed by ARJUN ARJUN SRINATH SRINATH MALLUR Date: 2024.11.05 MALLUR 17:38:53 +0530 (ARJUN. S. MALLUR) LXXXV Addl.City Civil & Sessions Judge, Bengaluru.
34