Delhi District Court
Omp (Comm) No. 18/19 vs M/S Aakash Education Services Pvt. Ltd on 16 December, 2022
IN THE COURT OF SH. AJAY KUMAR JAIN:
DISTRICT JUDGE COMMERCIAL COURT 03 - SOUTH EAST
DISTRICT SAKET COURTS, NEW DELHI.
IN THE MATTER OF:
OMP (Comm) No. 18/19
SOURABH DWIVEDI
S/o S.B. DWIVEDI
R/o 9/25 GREEN PART,
RAJIV GANDHI MARG,
BILASPUR,CHATTISGARH-495001 ....PETITIONER
Versus
M/s AAKASH EDUCATION SERVICES PVT. LTD.
THROUGH ITS AUTHORISED REPRESENTATIVE
PLOT NO. 8, PUSA ROAD, KAROL BAGH,
NEW DELHI- 110005 ....RESPONDENT
Date of Institution : 27.02.2019
Date of arguments : 13.12.2022
Date of Judgment : 16.12.2022
JUDGMENT
1. Vide this Order I Shall dispose of the petition filed under Section 34 (2) (A) (iii) and section 34 (2) (B) (ii) of Arbitration and Conciliation Act, 1996 for setting aside the impugned Award dated 31.102018 filed by petitioner.
12. Brief facts of the case of the claimant/respondent before the arbitrator that the respondent is a leading and reputed company in the field of coaching of medical/IIT-JEE/Engineering entrance examinations in the name and style of 'Aakash Institute/ Aakash IIT-JEE'.
3. The petitioner approached the respondent for coaching the student appearing in 12th Board, exam for medical, IIT-JEE/ Engineering entrance examinations for permission/license to launch coaching center in the name and style of 'Aakash Institute/ Aakash IIT-JEE' at Raipur, Chhattisgarh. After negotiation of terms & conditions, franchise agreement dated 08.10.2013 was executed, however, the petitioner was irregular in payment of franchise service charges, reimbursement of charges for material, invoices, recruitments IVRS, SBN to the claimant/respondent company. Various e-mails and letters were sent to the petitioner demanding payments during the year 2015 and 2016. Petitioner admitted the irregularities in payments and sought time to clear the dues at the earliest, but, failed to clear the outstanding dues. The petitioner was not running the center up to the mark, therefore, an observer was appointed. As per the report of the observer, serious academic and administrative lapses were found. The observer also pointed out that there was no coordination between the faculties, staff and students. Constant changes in the faculty members were also pointed out by the observer.
4. After report of the observer, respondent informed the lapses to the petitioner vide letter dated 08.10.2015. A sum of Rs. 69,71,822/- was found payable by the petitioner to the respondent out of which petitioner has paid only Rs. 10,00,000/- through RTGS on 29.08.2016 and did not clear the 2 outstanding dues of Rs. 59,71,822/-. The franchise agreement dated 08.10.2013 was terminated, thereafter, reminder were also issued to the petitioner vide letter dated 21.09.2016, 07.11.2016 and 14.01.2017, however, petitioner did not clear the dues. The respondent company issued a legal notice dated 12.04.2017 through its counsel to the petitioner demanding of Rs.59,71,822/- towards outstanding dues and Rs. 15,00,000/- towards damages along with interest @ 18% per annum, however, despite receiving this legal notice, petitioner not cleared liabilities.
5. Petitioner in reply to claim petition stated that before entering into the agreement in compliance of the requirement of claimant entered into lease agreement with Mr. Manoj Marwah on 10.09.2013 while paying the security deposit of Rs. 7,65,000/- and also agreed to pay Rs. 2,50,000/- per month as monthly rent. He had to bear extra costs of taxes, electricity, water charges and the maintenance charges etc. He had invested around Rs. 52,38,160/- for opening of the Institute. The respondent, however, failed to provide the support to the petitioner for the adequate and efficient running of the center, hence, petitioner had to suffer the losses and ultimately termination. Petitioner also pleaded that he was not given the access to the official e-mail [email protected] as the entire correspondence to claimant was done in the said e-mail, therefore, no communication have ever reached to him, but to show bona-fide, the petitioner made the payment of Rs. 10,00,000/-.
6. Ld. Counsel for the petitioner raised the plea that the impugned award was passed without jurisdiction as there was no valid reference of the disputes to arbitration since the respondent/claimant had not issued 3 mandatory notice under section 21 to the petitioner for appointing the arbitrator (relied upon Alpuro Building Systems Pvt. Ltd. Vs. Ozone Overseas Pvt. Ltd. 2017 SCC Online Del 7228, and Suvidha Infraction Pvt. Ltd. Vs. Intec Capital Limited 2018 SCC Online Del 11498). He further contended that the award is against public policy of Indian Law i.e section 34 (2) (b) of Arbitration and Conciliation Act as the Ld. Arbitrator has not applied his mind while awarding the claim (relied upon Associate Builders Vs. Delhi Development Authority (2015) 3 SCC 49). Ld. Arbitrator awarded claim no. 1 on the ground that it was not disputed by the petitioner, however, the same has been denied by the petitioner, thus clearly shows non application of mind in making the award. The award violates the public policy of India as Ld. Arbitrator while allowing claims of the respondent misconducted himself by treating the claim as proved, whereas there is no evidence on record. Petitioner's dues till 15.10.2015 were duly cleared. On 12.08.2016 the respondent/claimant herein raised demand of Rs. 52,98,094/-. Admittedly, on 29.08.2016, the petitioner paid Rs. 10,00,000/-. Despite there being no business and termination of the franchise, the respondent/claimant revised its demand to Rs. 69,71,822/-.
7. There is repeated invoicing and the claim is based on unreliable record. The observer report is the basis for claimant to say that the agreement was breached by petitioner herein, however, it may be noted that neither the report nor the observer had adduced any evidence on record. (relied upon Associate Builders Vs. Delhi Development Authority (2015) 3 SCC 49, and Ram Chandra Singh Vs. Savitri Devi and others (2003) 8 SCC
319). Written submissions were also filed by the petitioner.
48. The Ld. Counsel for the respondent/claimant submitted that notice dated 12.04.2017 had raised the dispute as required under law and satisfied the requirement of section 21 of Arbitration and Conciliation Act (relied upon Sarvesh Security Services Pvt. Ltd. Vs. Managing Director, DSIIDC, MANU/DE/1225/2018 dated 16.03.2018). In the objections the petitioner states that he has not received the notice, but admitted in his reply to the Arbitration proceedings. There are no averments in reply to the claim or objections filed under section 34 of Arbitration and Conciliation Act that notice was defective.
9. Ld. Counsel for the plaintiff submitted that the notice sent on the correct address. The communication as per section 3 of the Arbitration and Conciliation Act stands fully satisfied, termination notice, reminder notices were sent to last known addresses as mentioned in the agreement. The agreement containing arbitration clause is not disputed. The application under section 12 of Arbitration and Conciliation Act filed by the petitioner before the Ld. Arbitrator got dismissed and there is no application for challenging the jurisdiction of the arbitration under section 16 of Arbitration and Conciliation Act. There is no averments in reply filed by the petitioner before the Ld. Arbitrator that notice under section 21 of Arbitration and Conciliation Act was defective. Ld. Counsel for respondent submits that a sum of Rs. 10 Lakh has already been adjusted by the respondent in claim petition, and the respondent had duly intimated the said amount vide letter dated 31.08.2016 of termination letter. Ld. Counsel for respondent submits that re-appreciation of evidence is not open to the court under section 34 of the Arbitration and Conciliation Act (relied upon Badri Singh Vinimay 5 Private Limited Vs. MMTC Ltd. OMP No. 225/2015 decided on 06.01.2020 and IRCON International Ltd Vs. GPT-RAHEE JV (2022) 290 DLT 59 ). Written submissions also filed by respondent/claimant.
Arguments heard. Record perused.
10. The main contention of challenge of this award is that it is passed without jurisdiction as there was no valid reference of the dispute to the arbitration, as the respondent/claimant had not issued the mandatory notice under section 21 of Arbitration and Conciliation Act to the petitioner for appointment of arbitrator. It is pertinent to refer to the notice dated 12.04.2017, issued by the respondent to the petitioner, the receipt of which is admitted in reply during arbitral proceedings. The relevant portion of the notice reproduced under as :-
'It is further reassured you that if the above-said amount is not paid, within 15 days from the date of receiving the instant notice, my client is having right to adjudicate against you in all the legal remedy available as per law in criminal or civil in nature and including referring the matter to arbitration in terms of the relevant Arbitration clause contained in the agreement without any further reference to you at your risk, cost and expenses.' 'You are liable for the expenses incurred by my client for the present notice, which amounts to Rs. 22,000/- and interest @ 18% per annum till the time of actual payment of above said amount. You are further liable for the cost of such proceedings which may incur due to above acts as well as non- payment, Kindly take note that copy of this notice is retained in my records for further actions if required.' 6 By way of this legal notice, the respondent/claimant has demanded the claim within 15 days and in case of failure to avail the legal remedy as per law including referring the matter to the arbitration in terms of the relevant arbitration clause in the agreement without any further reference. This legal notice categorically mentioned about reference of the matter to the arbitration if payment is not made. In State of Goa Vs. Praveen Enterprises (2012) 12 SSC 581 purpose of issuance of notice under section 21 of the act is mainly to determine the date commencement of arbitration proceedings so as to ensure the claims of the claimant are within limitation.
There is no dispute over the fact that the claims are not within limitation. Furthermore, due notice of arbitration also be inferred from the fact that the respondent participated in the arbitration proceedings, thus Delhi High Court in case titled 'De Lage Landen Financial Services India Pvt. Ltd. Vs. Parhit Diagnostic Pvt. Ltd. Arn. P. No. 267/2021 decided on 09.08.2021' rejected the argument of no valid reference under section 21 of Arbitration and Conciliation Act.
11. No objection raised before the Ld. Arbitrator over notice section 21 of Arbitration of Conciliation Act in the statement of defense neither application was filed under section 16 of Act challenging the jurisdiction of the Arbitrator on this issue. When the petitioner failed to challenge the jurisdiction of Arbitrator under section 16 of the Act for non- compliance of section 21 of the Act then this could not be challenged under present petition 34 of the Act relied upon (Ovel Investment Pvt. Ltd Vs. India Bulls Financial Services Ltd. CS (OS) No. 1417/2009 decided 18.08.2009) and 7 S.N.Malhotra & Sons Vs. Airport Authority of India F.A.O (OS) No. 58/2022 decided on 01.04.2008.' The judgments of Alpro Builders Systems Pvt. Ltd Vs. Ozone Overseas Pvt. Ltd. 2017 SCCOnline Del 7228 and Suvidha infraction Pvt. Ltd. Vs. Intec Capital Limited 2018 SCC Online Del 11498 as relied by the petitioner are of no help in the present facts and circumstances.
12. The second contention raised by the petitioner is that Arbitrator has awarded the claim no.1 on the ground that it is not disputed by the petitioner which is specifically denied by him, thus, this is case of non application of mind and against the fundamental policy of Indian Law. But, in the statement of defense, except vague assertion, no specific plea is raised.
13. Ld. Arbitrator in the impugned award rightly observed that the parties entered into the franchise agreement on 08.10.2013 and despite repeated requests and reminder the petitioner did not pay the franchise service charges therefore the agreement was terminated. Numbers of communications were placed on record by the respondent that he had approached number of times to the petitioner to adhere with the terms of the agreement. The respondent/claimant also placed on record the communication written by the petitioner to the claimant dated 11.09.2015, 15.10.2015 and 27.10.2015 whereby the petitioner had admitted the untimely payment and other lapses on his part. It is also observed that neither in reply nor in oral arguments, petitioner denied the documents and only took sham plea that the same was done under the coercion. The petitioner never disputed the claim no.1, the only plea is inflated prices and non excess to official email, however, not able to prove the said plea. The termination agreement was not challenged, therefore, the respondent is also 8 entitled for compensation for breach of contract ( Oil and Natural Gas Corporation Vs. Saw Pipes Limited, 2003 (5) SCC 705). The amount of Rs. 10 lakhs was duly adjusted, therefore, there no force in the submission that the said amount was not adjusted.
14. Apex court in case title Delhi Airport Metro Express Pvt. Ltd. vs. Delhi Metro Rail Corporation Ltd. Civil Appeal No. 5627/21 dated 09.09.2021 MANU/SC/0623/2021 have delineated the contours of the courts power to review arbitral awards, the relevant paras are reproduced as under:-
"20. The 1996 Act was enacted to consolidate and amend the law relating to domestic arbitration, international commercial arbitration and enforcement of foreign arbitral awards and also to define the law relating to conciliation and for matters connected therewith, by taking into account the United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration and the UNCITRAL Conciliation Rules. One of the principal objectives of the 1996 Act is to minimize the supervisory role of courts in the arbitral process. With respect to Part I of the 1996 Act, Section 5 imposes a bar on intervention by a judicial authority except where provided for, notwithstanding anything contained in any other law for the time being in force. An application for setting aside an arbitral award can only be made in accordance with provisions of Section 34 of the 1996 Act. Relevant provisions of Section 34 (as they were prior to the Arbitration and Conciliation (Amendment) Act, 2015) read as under:-
"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).9
(2) An arbitral award may be set aside by the Court only if
(a) the party making the application furnishes proof 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 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. Without prejudice to the generality of sub- clause (ii), it is hereby declared, for the avoidance of any doubt, that an award is in conflict with the public policy of India if the making of the award was induced 10 or affected by fraud or corruption or was in violation of section 75 or section 81. ..."
21. An amendment was made to Section 34 of the 1996 Act by the Arbitration and Conciliation (Amendment) Act, 2015 (hereinafter, 'the 2015 Amendment Act '). A perusal of the statement of objects and reasons of the 2015 Amendment Act would disclose that the amendment to the 1996 Act became necessary in view of the interpretation of the provisions of the 1996 Act by courts in certain cases which had resulted in delay of disposal of arbitration proceedings and increase in interference by courts in arbitration matters, which had the tendency to defeat the object of the 1996 Act. Initially, the matter was referred to the Law Commission of India to review the shortcomings in the 1996 Act in detail. The Law Commission of India submitted its 176th Report, recommending various amendments to the 1996 Act. However, the Justice Saraf Committee on Arbitration constituted by the Government, was of the view that the proposed amendments gave room for substantial intervention by the court and were also contentious. Thereafter, on reference, the Law Commission undertook a comprehensive study of the amendments proposed by the Government, keeping in mind the views of the Justice Saraf Committee and other stakeholders. The 246th Report of the Law Commission was submitted on 05.08.2014. Acting on the recommendations made by the Law Commission in its 246th Report, amendments by way of the 2015 Amendment Act were made to several provisions of the 1996 Act, including Section 34. The amended Section 34 reads as under: -
"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).
(2) An arbitral award may be set aside by the Court only if--11
(a) the party making the application furnishes proof 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 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 12
(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.
(2-A) An arbitral award arising out of arbitrations other than international commercial arbitrations, 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.
..."
22. A cumulative reading of the UNCITRAL Model Law and Rules, the legislative intent with which the 1996 Act is made, Section 5 and Section 34 of the 1996 Act would make it clear that judicial interference with the arbitral awards is limited to the grounds in Section 34. While deciding applications filed under Section 34 of the Act, courts are mandated to strictly act in accordance with and within the confines of Section 34, refraining from appreciation or re-appreciation of matters of fact as well as law. (See: Uttarakhand Purv Sainik Kalyan Nigam Limited. v. Northern Coal Field Limited.2, Bhaven Construction Through Authorised Signatory Premjibhai K. Shah v. Executive Engineer Sardar Sarovar Narmada Nigam Ltd. and Another3 and Rashtriya Ispat Nigam Limited v. Dewan Chand Ram Saran4).
23. For a better understanding of the role ascribed to courts in reviewing arbitral awards while considering applications filed under Section 34 of the 1996 Act, it would be relevant to refer to a judgment of this Court in Ssangyong Engineering and Construction Company Limited v. National Highways Authority of India (NHAI)5 wherein R.F. Nariman, J. has in clear terms delineated the limited area for judicial interference, 13 taking into account the amendments brought about by the 2015 Amendment Act. The relevant passages of the judgment in Ssangyong (supra) are noted as under: -
"34. What is clear, therefore, is that the expression "public policy of India", whether contained in Section 34 or in Section 48, would now mean the "fundamental policy of Indian law" as explained in paras 18 and 27 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49: (2015) 2 SCC (Civ) 204] i.e. the fundamental policy of Indian law would be relegated to "Renusagar" understanding of this expression. This would necessarily mean that Western Geco [ONGC v. Western Geco International Ltd., (2014) 9 SCC 263 : (2014) 5 SCC (Civ) 12] expansion has been done away with. In short, Western Geco [ONGC v. Western Geco International Ltd., (2014) 9 SCC 263 : (2014) 5 SCC (Civ) 12] ,as explained in paras 28 and 29 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] , would no longer obtain, as under the guise of interfering with an award on the ground that the arbitrator has not adopted a judicial approach, the Court's intervention would be on the merits of the award, which cannot be permitted post amendment.
However, insofar as principles of natural justice are concerned, as contained in Sections 18 and 34(2) (a)
(iii) of the 1996 Act, these continue to be grounds of challenge of an award, as is contained in para 30 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204].
35. It is important to notice that the ground for interference insofar as it concerns "interest of India"
has since been deleted, and therefore, no longer obtains. Equally, the ground for interference on the basis that the award is in conflict with justice or morality is now to be understood as a conflict with the "most basic notions of morality or justice". This again would be in line with paras 36 to 39 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 14 49 : (2015) 2 SCC (Civ) 204] , as it is only such arbitral awards that shock the conscience of the court that can be set aside on this ground.
36. Thus, it is clear that public policy of India is now constricted to mean firstly, that a domestic award is contrary to the fundamental policy of Indian law, as understood in paras 18 and 27 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49: (2015) 2 SCC (Civ) 204], or secondly, that such award is against basic notions of justice or morality as understood in paras 36 to 39 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] . Explanation 2 to Section 34(2)(b)(ii) and Explanation 2 to Section 48(2)(b)(ii) was added by the Amendment Act only so that Western Geco [ONGC v.
Western Geco International Ltd., (2014) 9 SCC 263 :
(2014) 5 SCC (Civ) 12] ,as understood in Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] , and paras 28 and 29 in particular, is now done away with.
37. Insofar as domestic awards made in India are concerned, an additional ground is now available under sub-section (2-A), added by the Amendment Act, 2015, to Section 34. Here, there must be patent illegality appearing on the face of the award, which refers to such illegality as goes to the root of the matter but which does not amount to mere erroneous application of the law. In short, what is not subsumed within "the fundamental policy of Indian law", namely, the contravention of a statute not linked to public policy or public interest, cannot be brought in by the backdoor when it comes to setting aside an award on the ground of patent illegality.
38. Secondly, it is also made clear that reappreciation of evidence, which is what an appellate court is permitted to do, cannot be permitted under the ground of patent illegality appearing on the face of the award.
39. To elucidate, para 42.1 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] , namely, a mere contravention of the 15 substantive law of India, by itself, is no longer a ground available to set aside an arbitral award. Para 42.2 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] , however, would remain, for if an arbitrator gives no reasons for an award and contravenes Section 31(3) of the 1996 Act, that would certainly amount to a patent illegality on the face of the award.
40. The change made in Section 28(3) by the Amendment Act really follows what is stated in paras 42.3 to 45 in Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] , namely, that the construction of the terms of a contract is primarily for an arbitrator to decide, unless the arbitrator construes the contract in a manner that no fair-minded or reasonable person would; in short, that the arbitrator's view is not even a possible view to take. Also, if the arbitrator wanders outside the contract and deals with matters not allotted to him, he commits an error of jurisdiction. This ground of challenge will now fall within the new ground added under Section 34(2-A).
41. What is important to note is that a decision which is perverse, as understood in paras 31 and 32 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 :
(2015) 2 SCC (Civ) 204] , while no longer being a ground for challenge under "public policy of India", would certainly amount to a patent illegality appearing on the face of the award. Thus, a finding based on no evidence at all or an award which ignores vital evidence in arriving at its decision would be perverse and liable to be set aside on the ground of patent illegality.
Additionally, a finding based on documents taken behind the back of the parties by the arbitrator would also qualify as a decision based on no evidence inasmuch as such decision is not based on evidence led by the parties, and therefore, would also have to be characterised as perverse. "
24. This Court has in several other judgments interpreted Section 34 of the 1996 Act to stress on the restraint to be shown by courts while examining the 16 validity of the arbitral awards. The limited grounds available to courts for annulment of arbitral awards are well known to legally trained minds. However, the difficulty arises in applying the well-established principles for interference to the facts of each case that come up before the courts. There is a disturbing tendency of courts setting aside arbitral awards, after dissecting and reassessing factual aspects of the cases to come to a conclusion that the award needs intervention and thereafter, dubbing the award to be vitiated by either perversity or patent illegality, apart from the other grounds available for annulment of the award. This approach would lead to corrosion of the object of the 1996 Act and the endeavours made to preserve this object, which is minimal judicial interference with arbitral awards. That apart, several judicial pronouncements of this Court would become a dead letter if arbitral awards are set aside by categorising them as perverse or patently illegal without appreciating the contours of the said expressions.
25. 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 re-appreciate 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 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 17 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'.
26. Section 34 (2) (b) refers to the other grounds on which a court can set aside an arbitral award. If a dispute which is not capable of settlement by arbitration is the subject-matter of the award or if the award is in conflict with public policy of India, the award is liable to be set aside. Explanation (1), amended by the 2015 Amendment Act, clarified the expression 'public policy of India' and its connotations for the purposes of reviewing arbitral awards. It has been made clear that an award would be in conflict with public policy of India only when it is induced or affected by fraud or corruption or is in violation of Section 75 or Section 81 of the 1996 Act, if it is in contravention with the fundamental policy of Indian law or if it is in conflict with the most basic notions of morality or justice. In Ssangyong (supra), this Court held that the meaning of the expression 'fundamental policy of Indian law' would be in accordance with the understanding of this Court in Renusagar Power Co. Ltd. v. General Electric Co.6 In Renusagar (supra), this Court observed that violation of the Foreign Exchange Regulation Act, 1973, a statute enacted for the 'national economic interest', and disregarding the superior courts in India would be antithetical to the fundamental policy of Indian law.
Contravention of a statute not linked to public policy or public interest cannot be a ground to set at naught an arbitral award as being discordant with the fundamental policy of Indian law and neither can it be brought within the confines of 'patent illegality' as discussed above. In other words, contravention of a statute only if it is linked to public policy or public interest is cause for setting aside the award as being at odds with the fundamental 18 policy of Indian law. If an arbitral award shocks the conscience of the court, it can be set aside as being in conflict with the most basic notions of justice. The ground of morality in this context has been interpreted by this Court to encompass awards involving elements of sexual morality, such as prostitution, or awards seeking to validate agreements which are not illegal but would not be enforced given the prevailing mores of the day.7)
27. In light of the principles elucidated herein for interference with an arbitral award by a court in exercise of its jurisdiction under Section 34 of the 1996 Act, we proceed to consider the questions that arise in these Appeals as to whether the Division Bench of the High Court was right in setting aside the award of the Arbitral Tribunal dated 11.05.2017."
15. This court can only interfere u/s 34 if award is found to be suffering from vices of perversity, irrationality and patent illegality, against the public policy, however, the impugned award by the arbitrator do not suffer from any illegality leave aside the patent illegality as required for interference by this court.
16. Ld. Arbitrator passed the award after considering the entire material before him and I found no infirmity in the impugned award, hence the present petition stands dismissed and disposed of accordingly.
17. File be consigned to Record Room after due compliance. Announce in the open court on 16th December, 2022 (Ajay Kumar Jain) District Judge(Commercial Courts- 03), SE/Saket Courts/Delhi 19