Award In Which Vital Evidence Are Not Considered Can Be Set Aside On Grounds Of Patent Illegality U/S 34: Calcutta HC

The Calcutta High Court bench of Justice Sabyasachi Bhattacharyya affirmed that there cannot be any quarrel with the proposition that if there is a perversity in the award insofar as the non-consideration of vital evidence is concerned, the same tantamounts to violation of the fundamental policy of Indian Law as well as gives rise to a patent illegality, which is a sufficient ground for interference under Section 34 of the Arbitration Act. Brief Facts AP-COM No. 334 of 2024 has been filed under Section 34 of the Arbitration and Conciliation Act, 1996 (for short “the 1996 Act”), by Kesoram Industry Limited, the respondent in the Arbitral Proceedings (hereinafter referred to as the “respondent”) whereas Mintech Global Private Limited has filed AP-COM No.335 of 2024 challenging a different portion of the same award, being the claimant in the Arbitral Proceeding (hereinafter referred to as the “claimant”). An agreement was entered into in writing on January 27, 2016 between the parties, whereby the claimant was to set up and commission a manufacturing unit to make and produce the end products of cement ready mix mortar, AAC blocks, fly ash bricks and allied products as per requirement of the respondent and to manufacture, make and deliver such end products to the respondent. A dispute having arisen between the parties following the issuance of two letters dated March 7, 2017 and March 8, 2017 by the respondent to the claimant asking the latter to stop further manufacture and production of the end products, the arbitral proceeding was initiated by the claimant alleging that the termination was invalid and making 3 several claims, inter alia towards outstanding sum and interest, future commitment charges, loss of future earning and ancillary reliefs. The respondent, on the other hand, took out a counter claim with the statement of defence, praying for recovery of mobilization advance and interests, damage to reputation, recovery of commitment charges allegedly paid under mistaken belief and fraudulent inducement and damages due to breach. By the impugned arbitral award dated March 20, 2023, the majority members of the AT granted the claims towards outstanding sum and interest at the rate of 9 per cent per annum from March 2017 till the date of the award, future commitment charges and costs to the tune of Rs.3.50 Crore. On the other hand, the counter claims of recovery of mobilisation advance and interest thereon at the same rate of 9 per cent per annum were also granted. Contentions The respondents submitted that the clauses of the agreement indicate that the same could be determined at will with prior six months‟ notice. It is contended that the communications between the parties clearly show that the parties chose to exit the contract, rendering the requirement of prior notice academic. That the commitment charges could at best be granted till the expiry of six months after the notice since the contract, by its very nature, was determinable at will. The AT went beyond its jurisdiction and re-wrote the contract by granting future commitment charges for a period of ten years.That the claimant failed to produce sufficient documents in support of its claim of damages and in the absence of any proof in that regard, the provisions of Sections 73 and 74 of the Contract Act come into play and the claim ought to have been dismissed.That The commitment charges would be 5 conditional upon the claimant producing the minimum assured quantity and making the same available for consumption by the respondent. Having not done so and having not proved the commencement date of commercial production, none of the claims in that regard ought to have been granted. Reliance was placed on Associate Builders v. Delhi Development Authority (2015) and Ssangyong Engineering and Construction Co. Ltd. v. National Highway Authority of India (NHAI) (2019) in support of the proposition that an unreasoned award violates the fundamental policy of Indian law and amounts to patent illegality under Section 34 of the 1996 Act. Non consideration of vital evidence tantamounts to perversity, on which ground the award ought to be set aside. Per contra, the claimant submitted that the termination itself being invalid, the provision in the contract for repayment of mobilisation advance and interest thereon were automatically scrapped and hence, unlawfully granted in the award. That the respondent paid the commitment charges without demur till June, 2017 without any denial of liability and as such, cannot now claim a refund of the same.No reason was attributed by the respondent at any point of time for asking the claimant to stop production, nor was any clear termination intended to be conveyed.if compensation is not by way of penalty or unreasonable, the same can be awarded if there is a genuine preestimate by the parties, for which contention learned...

Award In Which Vital Evidence Are Not Considered Can Be Set Aside On Grounds Of Patent Illegality U/S 34: Calcutta HC

Mohd Malik Chauhan

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