An Award Which Blatantly Misapplies The Provisions Of The Contract Law Resulting In A Perverse Interpretation Of The Law, Is Liable To Be Set Aside: Delhi High Court

The High Court of Delhi has held that an award which blatantly misapplies the provisions of the Contract Law resulting in a perverse interpretation of the law, is liable to be set aside. The bench of Justice Neena Bansal Krishna set aside an arbitral award wherein the arbitrator has misconstrued the law of reciprocal promises and bailment under the Indian Contract Act. It held that misapplication of the substantive law goes to the root of the matter and leads to a miscarriage of justice. Facts The parties entered into an agreement dated 01.03.2011. In terms of the agreement, the respondent agreed to store certain number of carrot bags in the cold storage of the petitioner for a period from 01.03.2011 to 31.10.2011. A dispute arose between the parties when the carrots stored by the respondent were dumped by the petitioner. Accordingly, the respondent invoked the arbitration clause and the parties were referred to arbitration. Before the arbitrator, the respondent filed its claims and the petitioner also filed the counter-claims. The petitioner also preferred an application under Section 16 of the A&C Act challenging the jurisdiction of the arbitral tribunal on the ground that the petitioner is covered under the provisions of Uttar Pradesh Regulation of Cold Storages Act 1976, therefore, the dispute has to be referred to the authority mentioned in the act and the dispute is non-arbitrable as a special forum is created therein. Before the commencement of the cross-examination of its witnesses, the petitioner moved an application seeking to bring on record certain documentary evidences in support of its case, these included certain communications with the government department regarding the rotten state of carrots stored in the cold storage facility. However, both these applications were dismissed by the arbitrator. Vide the impugned award, the arbitrator allowed the claims of the respondent and partly allowed the counter-claims preferred by the petitioner. It held that the petitioner acted in breach of the contract by disposing of the stored bags of carrot and is liable to compensate the respondent for the loss. It allowed the counter-claim on to the extent of unpaid rent. Aggrieved by the award, the petitioner challenged it under Section 34 of the A&C Act. Grounds of Challenge The petitioner challenged the award on the following grounds: The dispute between the partis is covered by the Uttar Pradesh Regulations of Cold Storage Act which provides for a specific forum of dispute resolution, therefore, the dispute is non-arbitrable. It placed reliance on the judgment of Supreme Court in Vidya Drolia. The arbitrator erred in holding that the petitioner had misappropriated the bags of the carrots during the currency of the agreement by relying upon an unproved show cause notice. It erred to appreciate that the serving of the same is not proved as it was issued in October 2011 and the courier receipts and tracking status report is dated October 2012 and the tribunal erred in holding that the show cause notice was served on the petitioner in October 2011 during the currency of the agreement.The tribunal also failed to accept in evidence two letters issued by the petitioner to the respondent, calling upon it to remove the carrots lying in the cold storage. The arbitrator also erred in dismissing the application filed by the petitioner for bringing on record certain additional evidences which were essential to prove the case of the petitioner. The tribunal rejected this application merely on the ground that the cheque furnished by the petitioner to pay the costs imposed by the tribunal for such application got dishonoured, however, the petitioner was willing to pay in cash the costs on the date when the application was scheduled to be heard. The arbitrator also erred in rejecting the application preferred by the petitioner under Section 27 of the A&C Act seeking he assistance of Civil Court for examination of Government official i.e. District Horticulture Officer, Ghaziabad who had inspected the Cold Storage on 24.11.2011 and found the quality of the carrots to be deteriorating and had directed the respondents to remove the carrots, and to produce official records/ letters so exchanged, as primary evidence.The arbitrator also erred in awarding the damages to the respondent in absence of any evidence to prove the quality or the weight of the carrots stored in the cold storage, the arbitrator awarded the damages on the basis of mere calculation provided by the respondent without any corroboration. This evidence ought to have been brought on record and they should have also produced the Books of Accounts and other related documents to establish the cost of acquisition of carrots and the weight, quality in order to prove the alleged factual losses. Analysis by the Court Firstly, the Court...

An Award Which Blatantly Misapplies The Provisions Of The Contract Law Resulting In A Perverse Interpretation Of The Law, Is Liable To Be Set Aside: Delhi High Court

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