Grounds For Challenging Arbitral Awards Narrower Under 1940 Act Compared To 1996 Act: Calcutta High Court

The Calcutta High Court bench of Justice Sabyasachi Bhattacharyya has held that the grounds for challenging an arbitral award under the Arbitration Act of 1940 are more limited compared to those under the Arbitration and Conciliation Act of 1996. The High Court considered the grounds enumerated under Section 34 of the 1996 Act which allow for a challenge if a party was incapacitated, if the arbitration agreement was invalid, if the applicant was not given proper notice of the Arbitrator's appointment, if the award dealt with matters beyond the arbitration agreement, or if the composition of the Arbitral Tribunal or the procedure was not in accordance with the agreement. The High Court further noted that under the 1996 Act challenges could also be made if the subject matter of the dispute was not arbitrable under the existing law or if the award conflicted with public policy in India. A significant inclusion under the 2015 Amendment to the 1996 Act was the ground of patent illegality on the face of the award though this could not be invoked merely due to an erroneous application of the law or re-appreciation of evidence. In contrast, the High Court observed that the grounds for setting aside an award under Section 30 of the 1940 Act were more restrictive. Under Section 30, an award could only be set aside on the grounds of misconduct by the Arbitrator, if the award was made after an order by the Court superseding the arbitration, or if the award was improperly procured or otherwise invalid. The High Court highlighted that patent perversity was incorporated into the ground of misconduct under Section 30(a) through judicial interpretation which treated it as a misconduct of the proceedings by the Arbitrator. Brief Facts: State of West Bengal (Petitioner) challenged an arbitral award under Section 30, read with Sections 33 and 41 of the Arbitration Act, 1940. The award in question was initially matured into a decree of the court but was later recalled. The primary contention of the Petitioner was that the award was fundamentally flawed being devoid of reasons and unsupported by any evidence. The Petitioner argued that the arbitrator has misconducted himself or the proceedings which justified setting aside the award under Section 30(a) of the 1940 Act. The Petitioner relied relies on several precedents including State of Rajasthan v. Ferro Concrete Construction Private Limited, State of West Bengal v. Bharat Vanijya Eastern Private Limited, Dyna Technologies Private Limited v. Crompton Greaves Limited, Bharat Coking Coal Ltd. v. L.K. Ahuja, Unibros v. All India Radio, and Ssangyong Engineering & Construction Company Limited v. National Highways Authority of India. These cases collectively emphasize the need for reasoned awards and highlight that an arbitrator's failure to provide reasons or base an award on evidence constitutes legal misconduct. On the other hand, Sambhu Nath Ghosh and another (Respondents) contended that the arbitrator did, in fact, furnish elaborate reasons for the award addressing each of the claims in detail. The Respondent pointed out that not all claims were allowed, which, according to them, indicated the arbitrator's impartiality and thorough consideration of the evidence. Specific reasons were provided for each claim, such as the delay in execution, the calculation based on the RBI Bulletin and the reduction of claims based on the proximity of the claimant's head office to the worksite. The Respondent argued that the arbitrator applied widely accepted commercial formulas and scrutinized the evidence thoroughly. Regarding the requirement for a speaking award, the Respondent noted that Clause 25 of the General Conditions of Contract, which mandated the arbitrator to provide reasons, was not applicable to the contract in question as it was introduced only after the work order was issued. Observations by the High Court: The High Court rejected the Petitioner's argument that the 1996 Act imposed more stringent grounds for challenging an award. Instead, the High Court held that the grounds under the 1940 Act were much more limited in scope. Turning to the impugned award, the High Court found that the Arbitrator provided reasons to support most of the award's components. In regard to Claim 2(c), which concerned additional on-site expenses during the extended period of work, the Arbitrator awarded Rs. 2,51,250/-. The Arbitrator's award reflected a thorough examination of the relevant correspondence showing that delays were caused by hindrances that the respondent/petitioner failed to remove in time. The Arbitrator concluded that the claimants were not responsible for the delay and that the respondent's failure to remove the hindrances justified the award. The High Court further noted that the Arbitrator took into account that the respondent/petitioner, despite being entitled to under the...

Grounds For Challenging Arbitral Awards Narrower Under 1940 Act Compared To 1996 Act: Calcutta High Court

Rajesh Kumar

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