Court Must Assign Reasons For Accepting Or Rejecting Grounds Of Challenge U/S 34 Of Arbitration Act: Bombay High Court

The Bombay High Court bench of Justices A.S. Chandurkar and Rajesh Patil has held that a petition under Section 34 of the Arbitration and Conciliation Act, 1996 (Arbitration Act) cannot be dismissed merely by stating that the scope of interference is limited; the court must address each ground of challenge and provide reasoned findings. Brief Facts: The appellant (hereinafter referred to as 'NAFED') and the first respondent (hereinafter referred to as 'REPL') entered into two Tie Up Agreements dated 24/03/2004 and 30/04/2004 on the basis of which NAFED agreed to extend financial assistance to REPL to the extent of 80% of the value of stock that was to be procured by REPL. On differences arising between the said parties, NAFED invoked the arbitration clause by its letter dated 17/03/2008. The disputes were referred to the sole Arbitrator who by his award dated 12/02/2019 dismissed the claim raised by NAFED as made against the first respondent. The award was the subject matter of challenge by NAFED in proceedings filed under Section 34 of the Arbitration Act. By the impugned judgment dated 22/04/2024, the application filed under Section 34 of the Arbitration Act came to be dismissed. Contentions: The Appellant submitted that the Tie Up Agreements indicated that the relationship between the parties were that of a lender and borrower. The learned Arbitrator erred in recording a finding that the Tie Up Agreements were in the nature of a joint venture or akin to a partnership. It was further argued that from their conduct, it was clear that the parties had understood the Tie Up Agreements to be loan/finance agreements and the issuance of various cheques amounted to admission of REPL's liability. It was also argued that the learned Arbitrator erred in allowing the counter claim preferred by REPL without examining as to whether such claim was in fact maintainable or not. The basis for allowing the claim was the alleged loss of profit. However, there was no evidence on record placed by REPL to support such claim. Per contra, the Respondent submitted that the scope for interference under Section 37 of the Act of 1996 was limited as the Court would not sit in appeal over the award as passed and that it would not re-appreciate or re assess the evidence. It was further submitted that the Tie Up Agreements were indeed in the nature of joint venture or partnership agreements between the parties. It was not the business of NAFED to grant any loan under its bylaws. Lastly, it was submitted that the award of interest was within the discretion of the learned Arbitrator. The same had been duly exercised in accordance with Section 31(7)(b) of the Act of 1996. Observations: The Supreme Court in Delhi Metro Rail Corporation Ltd. Vs. Delhi Airport Metro Express Pvt. Ltd. (2024) jurisdiction under Section 37 of the Arbitration is akin to the jurisdiction of the Court under Section 34 and is restricted to the same grounds of challenge as Section 34 of the Arbitration Act. The court observed that while the court under section 34 of the Arbitration does not sit in appeal over an arbitral award, it must consider and address objections raised against the award. The court is required to provide reasons for accepting or rejecting the challenge. Simply stating that the scope of interference is minimal does not justify refusing to examine specific grounds on which the award could be set aside. The court noted that the Single Judge failed to address the challenge of NAFED with respect to the nature of the Tie-Up Agreements. Merely stating that the Arbitrator had considered evidence and legal provisions was not enough. Given the dispute on this issue, the judge was required to examine the rival contentions and provide a reasoned opinion within the limited scope of interference under section 34 of the Arbitration Act which was not done. The court noted that NAFED challenged the award on the ground that the counterclaim was allowed despite contradictory pleadings of the REPL and failure to apply fundamental legal principles which amounted to patent illegality. Therefore, the Single Judge was obligated to consider this challenge under section 34 of the Arbitration Act and record findings which were not done. It also said that Grant of such interest amounted to the learned Arbitrator travelling beyond the pleadings and reliefs sought by REPL. This aspect has not been considered by the learned Judge in the impugned judgment when the grant of relief as prayed for in the counter claim was under challenge by NAFED. It was necessary for the learned Judge to have considered this aspect while deciding the challenge to the impugned award under Section 34 of the Arbitration Act. The court observed that taking an overall view of the matter, it can be seen that NAFED in its grounds of challenge raised under Section 34 of the...

Court Must Assign Reasons For Accepting Or Rejecting Grounds Of Challenge U/S 34 Of Arbitration Act: Bombay High Court

Mohd Malik Chauhan

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