Section 34 Challenge Unwarranted If Arbitrator's Judgment Is Well-Reasoned And Based On Evidence: Calcutta High Court

The Calcutta High Court bench of Justice Sabyasachi Bhattacharyya has held that if an Arbitrator's judgment is well-reasoned and backed by substantial evidence, there are no grounds to challenge it under Section 34 of the Arbitration and Conciliation Act, 1996. Brief Facts: The matter pertained to a dispute between BLA Projects Private Limited (the claimant/respondent) and Damodar Valley Corporation (DVC) (the petitioner). In the arbitration proceedings, BLA Projects claimed under seven heads, of which four claims were granted by the arbitrator. DVC's counterclaims on two counts were dismissed. Feeling aggrieved, the Petitioner approached the High Court and filed a challenge under Section 34 of the Arbitration and Conciliation 1996. The Petitioner argued that the arbitrator's award is inconsistent with the contractual terms. According to the Petitioner, the contract allowed DVC to terminate if BLA Projects engaged in corrupt or fraudulent practices, as specified in various contract clauses including Clause 15 of the General Terms and Conditions, Clause 17 of the General Conditions of Contract (GCC), Clause 14 of the Annual Rates Contract (ARC), and Clause 24.2.1 of the Additional/Special Conditions of Contract. These clauses all permit termination due to corrupt or fraudulent conduct, which included both procurement and performance phases. The Petitioner contended that the arbitrator erroneously limited the scope of "corrupt" and "fraudulent" practices to the procurement phase. The Petitioner also challenged the procedural aspects of the award. It contended that the termination notice issued by DVC followed a court directive and was preceded by a reasoned order by the Executive Director of DVC allowing termination. The Petitioner claimed that the arbitrator's focus on Clause 24.2.1 alone was flawed. Further, the Petitioner argued that BLA Projects engaged in corrupt and fraudulent practices by delivering contaminated coal which was acknowledged in various communications and cross-examinations. The Petitioner highlighted that contamination of coal, as admitted by BLA Projects, justified the contract's termination. Regarding the claim for loss of profits, the Petitioner contended that the arbitrator's award was unjust since it extended the claim to the entire contract period despite early termination. The Petitioner disputed the credibility of the evidence provided by BLA Projects including the CA certificate. Observations by the High Court: The High Court noted that given that the termination was immediate, occurring at the same time as the notice, the other clauses are irrelevant. Therefore, it held that the Arbitrator correctly focused on Clause 24.2.1, which addressed immediate termination. This clause stated that immediate termination can occur if the contractor engages in corrupt or fraudulent practices, as judged by the employer. The terms "corrupt" and "fraudulent" practices were explicitly defined in sub-clause (c) of Clause 24.2.1 referring specifically to activities during the procurement or execution of the contract. The definition of "corrupt practice" involved the offering, giving, receiving, or soliciting of something valuable to influence a public official's actions in procurement or contract execution. According to the clause, these practices must pertain to the competition or execution of the contract. "Fraudulent practice" is described as misrepresenting facts to influence the procurement process or contract execution to the detriment of the employer. This included collusion among bidders to set artificial prices and eliminate competition. The High Court held that since the claimant won the contract and worked for about two months, the fraudulent practices defined in Clause 24.2.1 were not applicable as they pertained to the bidding stage rather than the execution stage of the contract. On the issue of loss of profit, the Arbitrator examined detailed calculations and evidence provided by the claimant. The calculation of profit based on the agreed rate and the detailed breakdown of charges were thoroughly reviewed, and no effective cross-examination challenged this evidence. Consequently, the Arbitrator accepted the claimant's claim for loss of profit. For the claim of loss of reputation and goodwill, the High Court noted that the Arbitrator considered the continuous commercial relationship between the parties and the potential impact of the unlawful termination on the claimant's future business prospects. The High Court held that it cannot reappraise evidence or correct errors of law but must look for instances of patent illegality. It held that there was no evidence of such illegality in the Arbitrator's decision and the decision was well-reasoned and supported by the evidence. Therefore, the High Court dismissed the petition. Case Title: Damodar Valley Corporation Vs BLA...

Section 34 Challenge Unwarranted If Arbitrator's Judgment Is Well-Reasoned And Based On Evidence: Calcutta High Court

Rajesh Kumar

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