Sole Arbitrator Returning Finding Based On Presumption, Modifying Agreement Vitiates Award: Allahabad High Court
The Allahabad High Court has held that finding returned by a Sole Arbitrator based on presumption and which has the effect of modifying the agreement, vitiates the arbitral award.The bench of Chief Justice Arun Bhansali and Justice Jaspreet Singh held “The Sole Arbitrator by returning a finding which is not based on any evidence and material on record and merely is based on presumption...
The Allahabad High Court has held that finding returned by a Sole Arbitrator based on presumption and which has the effect of modifying the agreement, vitiates the arbitral award.
The bench of Chief Justice Arun Bhansali and Justice Jaspreet Singh held
“The Sole Arbitrator by returning a finding which is not based on any evidence and material on record and merely is based on presumption coupled with the fact that it has the effect of modifying the terms of the agreement and also amounts to reading something in the clause, which the parties conspicuously left out from being incorporated and this exercise apparently is beyond the jurisdiction of the Arbitrator and thus vitiates the award.”
Appellant was engaged in the sale of VIVO mobile phones. Respondent firm is an advertising firm engaged in providing market services. An agreement was entered into between the parties for advertising. Upon dispute being raised, appellant terminated the contract vide email. Subsequently, respondent invoked the arbitration clause and a sole arbitrator was appointed.
An award was passed in favour of the respondents, which was challenged by the appellant under Section 34 of the Arbitration and Conciliation Act, 1996. The application was dismissed. Accordingly, appellant filed an appeal under Section 37 before the High Court.
It was pleaded that the parties had consented that an arbitrator in Lucknow could only adjudicate upon the dispute regarding bills raised for work done in Lucknow and not in other districts. However, the both the Sole Arbitrator and the Commercial Court No.1 overstepped their jurisdictions by entering into the disputes which fell beyond the limits of Lucknow. Accordingly, it was argued that there was patent illegality in the award.
Referring to the judgment of the Apex Court in UHL Power Co. Ltd. v. State of H.P, the Court observed that the introductory covenant of the agreement mentioned works in the City of Lucknow but the respondent had raised claims in the statement of claims regarding the work done in Lucknow as well as in other districts of U.P.
Though a specific pleading was taken by the appellant that the agreement before the sole arbitrator was confined to the work done in Lucknow, the same was rejected by the Arbitrator on grounds that the agreement did not specifically bar the adjudication of disputes for work done outside Lucknow.
Perusing the introductory covenant and the arbitration clause, the Court held that the intention of the parties was clear, i.e., appellants had only engaged respondents from advertising work in Lucknow.
“Apparently, if the parties had agreed for engaging the respondents for advertising services for the entire State of Uttar Pradesh, it could have very easily mentioned it in the agreement itself but it has been conspicuously left out and it has been restricted only to the city of Lucknow. It is in this context that the arbitration clause provides that any dispute arising out of this agreement or in relation thereto shall be referred to arbitration and the Arbitrator was to be appointed by the Indian Council of Arbitration.”
Relying on Emaar (India) Ltd. v. Tarun Aggarwal Projects LLP and Pam Development Private Limited vs State of West Bengal , the Court held there was no evidence to show that the parties, by their conduct, had enlarged the scope of the agreement and the arbitration agreement to bring under it the work done outside Lucknow. It also held that parties had admitted that there was no correspondence to change the scope of the arbitration agreement or make the principal agreement regarding the work done in Lucknow applicable to the work done in other districts.
“Even for the Arbitrator to have come to a conclusion that the scope of the arbitration clause took within its fold disputes relating to the work done not only within the city of Lucknow but also relating to the work done in other districts of Uttar Pradesh, then it had to be based on some evidence or material but there is no reference to any such evidence. The Sole Arbitrator has given his conclusion and interpreted the clause without discussing the material evidence led by the parties hence the said finding is rendered vulnerable to be examined by the Court.”
It was held that unless the parties had expanded the scope of the agreement, the same could not have been done by the Sole Arbitrator merely because work was done beyond the scope of the agreement. It was held that arbitration clause was restricted to the work done in Lucknow and could not have been extended by the Sole Arbitrator to apply to the work done in other districts.
Referring to Gayatri Balasamy v. ISG Novasoft Technologies Limited, the Court held that the work down outside Lucknow could not be brought within the ambit of the arbitration clause. Accordingly, the award and the order of the Commercial Court were set aside.
Case Title: M/S Regenvo Mobile Private Limited Lucknow Thru Its Director Rahul Singh And Anr. Versus M/S Siyogi Enterprises Thru Managing Director And Others [APPEAL UNDER SECTION 37 OF ARBITRATION AND CONCILIATION ACT 1996 No. - 75 of 2024]