Expert Tribunal's Award Did Not Suffer From Patent Illegality, Cannot Be Set Aside U/S 34 Of Arbitration Act: Delhi High Court

The Delhi High Court Bench of Justice Yashwant Varma and Justice Dharmesh Sharma has held that the scope of interference by the Court with the arbitral award under Section 34 is very limited, and the Court is not supposed to travel beyond the aforesaid scope to determine whether the award is good or bad.In the present case, the court held that the expert tribunals award did not suffer from patent illegality, and thus could not be set aside under Section 34 of the Arbitration Act.Brief Facts: The appellant is engaged in providing services related to data collection, organization, and analysing. And, the respondent, established by the Government of India, coordinates activities concerning medicinal plants and supports policies and programs for their trade, export, conservation, and cultivation. After an amendment in the Drugs and Cosmetic Rules, 1945 it was required that the licensed manufacturers of Ayurveda, Sidha and Unani (“ASU”) drugs to maintain records of raw materials used in manufacturing and submit them to the State Drug Licensing Authorities. The respondent engaged the appellant for the work of data collection. The respondent also undertook to provide a list of 8,000 units with relevant details for immediate commencement of work and emphasized that the data submission by all units was mandatory under a special enactment, with non-compliance leading to fines and other consequences.However, it was later discovered that the respondent had not maintained a list of ASU units, compelling the appellant to expend significant time and resources in compiling a list of approximately 31,000 prospective units identified through directories and internet sources, including traders, marketers, collectors, and users of ASU products. This resulted in an additional financial burden on the appellant. Certain disputes started arising between the parties which led to the initiation of arbitral proceedings to adjudicate the dispute. Then, the Arbitrator passed an award in Favor of the appellant and held that respondent failed to provide necessary information regarding the Units and misrepresented key project details in the EOI leading to frustration of the contract. Aggrieved by the Award, the respondent filed a petition under Section 34 of the Act, seeking to set aside the Award, alleging it was patently illegal. Then, the impugned order was passed, and the award was set aside by the Single Judge. Thereafter, the appellant preferred an appeal under Section 13(1) of the Commercial Courts Act, 2015, read with Section 37 of the Arbitration and Conciliation Act, 1996, assailing the impugned order passed by the Single Judge.Contentions of the parties: The appellant contended that the arbitral award has been rendered by a mutually appointed expert arbitrator with specialized knowledge in the field of medicine and the subject project, which is well-reasoned and based on the material evidence on record.Also, it was stated that the Single Judge erroneously concluded that the Award was patently illegal, overlooking the detailed reasoning provided by the arbitrator and disregarding the settled legal principle that an arbitral award issued by an expert in the field is not to be scrutinized as strictly as a decision by a legally trained adjudicator.Also, the appellant relied on the judgment in Hindustan Construction Company Ltd. v. National Highways Authority of India (2024) wherein the court held that there is limited scope of judicial interference under Section 34 of the Act.Observations:The court observed that an arbitral award can only be set aside by moving an application on grounds mentioned under sub-section (2) and sub-section (3) of Section 34 of the Act. An award can be interfered with where it is in conflict with the public policy of India, i.e., if the award is induced or affected by fraud or corruption or is in contravention of the fundamental policy of Indian law, or if it is in conflict with basic notions of morality and justice.Additionally, the court held that the scope of interference by the Court with the arbitral award under Section 34 is very limited, and the Court is not supposed to travel beyond the aforesaid scope to determine whether the award is good or bad. The court relied on the case of MMTC Ltd. v. Vedanta Ltd. (2019), where the court outrightly rejected the plea that the appellate court would be competent to arrive at a different conclusion based on the evaluation of evidence placed on the record.In the case of NHAI v. M. Hakeem (2021), the Supreme Court held that “there is no power vested with the Court under Section 34 to modify an award. It was emphasized that including the power to modify an award in Section 34 would cross the Lakshman Rekha and result in doing what, according to the justice of the case, ought not to be done. The court held that “the Arbitral Tribunal provided plausible reasons for allowing the appellant's claim. Although an alternative view could be formed based on the evidence,...

Expert Tribunal's Award Did Not Suffer From Patent Illegality, Cannot Be Set Aside U/S 34 Of Arbitration Act: Delhi High Court

Mohd Malik Chauhan

Tags