Award In Which Serious Allegations Of Fraud Are Not Decided Must Be Set Aside On Grounds Of Patent Illegality: Gujarat High Court

The Gujarat High Court Bench of Chief Justice SUNITA AGARWAL and Justice PRANAV TRIVEDI affirmed that if serious allegations of fraud are raised that the arbitration agreement was entered into by fraud and collusion and such allegations are not decided by the Arbitrator while passing an award, such an award is liable to set aside on the ground of patent illegality under section 34 of the Arbitration Act Brief Facts The present appeal under Section 37 of the Arbitration and Conciliation Act' 1996 (for short, “the Act' 1996”) is filed challenging the judgment and order dated 13.09.2024 passed by the Special Judge, Commercial Court and the 3rd Additional District Judge, Ahmedabad (Rural) under Section 34 of the Act' 1996 as also the arbitral award dated 26.11.2021 passed by the learned Arbitrator, adjudicating the dispute between the parties arising out of the alleged lease agreement dated 14.09.2012, entered into between the parties. The lease agreement was executed between the parties, i.e. the claimants and the respondents herein on 14.09.2012 whereunder, the claimants are shown as lessors and the respondent MEGA (Metro Link Express for Gandhinagar and Ahmedabad) Company Ltd. is the lessee.The property in question admeasuring 11,941 sq.mts (super built-up area) along with common parking plot for vehicles was let out to the appellants herein for the period of five years from 01.09.2012. The agreement was subject to payment of monthly rent of Rs.5,37,345/- to be paid in advance on or before seventh date of each month. Other terms and conditions of the lease deed such as increase of rent by 10% every year and other charges as specified therein are binding on the parties. It was further agreed upon between the parties that the respondent shall handover the vacant possession of the subject property to the claimants on the expiry of the lease period, i.e. 31.08.2017 and in event of failure, the respondent shall be liable to pay penalty to the tune of 1.5 times of the lease rent amount as determined at the time of expiry of the contract, without prejudice to other remedies available to the appellants / lessor. Inspite of repeated reminders, neither rent had been paid nor the possession of the property was restored to the claimants and the respondent continued to use the property in question in breach of the conditions of the lease agreement. Even after expiry of the lease period on 31.08.2017, the possession of the property was not restored back and the respondent continued to use the tenament after the expiry of the lease period in total breach of the contract. The arbitration proceedings were initiated by the claimants by filing a petition under Section 11 of the Act' 1996 before the High Court, wherein dispute was referred to the arbitrator under the order dated 27.04.2018. It is contended that, at the fag end of the arbitral proceedings, the possession of the property in question was restored back to the claimants on 31.12.2020. Contentions The appellant submitted that the learned Arbitrator has committed patent illegality in referring the dispute to an unnamed authority, stated to be competent authority having power to decide reasonable rent under Government resolution / circulars / policy decisions as in force at the relevant point of time. That it is absolutely beyond the jurisdiction of the learned Arbitrator to refer the dispute to any third party, inasmuch as, the learned Arbitrator is mandated by the Referral order passed by this Court dated 27.04.2018 for adjudication of the disputes between the parties arising out of the lease agreement dated 14.09.2012.That once the allegations of collusion in signing the lease agreement dated 14.09.2012 were not adjudicated by the learned Arbitrator, it could not have taken exception to the terms and conditions of the lease deed, which bind the parties.Reliance was placed upon the decision of Calcutta High Court in the case of M/s Usha Martin Limited Vs. M/s Eastern Gases Limited [2017] and in the case of Eastern Gases Limited Vs. Usha Martin Limited [2017] to submit that the principles, when it comes to delegation of power by an Arbitrator, are settled to the extent that the Arbitrator cannot delegate his power to make an award, inasmuch as, when people go to arbitration, they bind themselves to abide by the decision of the arbitrator of their choice. Per contra, the respondent submitted that the interference by Courts in an arbitral award will not entail review on the merits of the dispute and has to be limited only to the situations, where it is found that the findings of the learned Arbitrator are arbitrary, perverse, shocking the conscience of the Court and where the illegality goes to the root of the matter. That commercial court also noted that the learned Arbitrator was not competent to decide the question of fixation of rent and hence, the...

Award In Which Serious Allegations Of Fraud Are Not Decided Must Be Set Aside On Grounds Of Patent Illegality: Gujarat High Court

Mohd Malik Chauhan

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