Arbitration and Conciliation Act | Mere Violation Of Substantive Law By Itself Not A Valid Reason To Set Aside Arbitral Award: Jharkhand High Court

The Jharkhand High Court while dismissing an appeal directed challenging the Commercial Court's dismissal of a Section 34 Petition against an arbitrator's award, has held that a mere contravention of substantive law by itself does not constitute a valid ground for setting aside an arbitral award subsequent to the 2015 amendment in the Arbitration and Conciliation Act, 1996 (Act).

The division bench headed by Acting Chief Justice Shree Chandrashekhar and Justice Anubha Rawat Choudhary observed, “As explained above, it has been held by the Hon'ble Supreme Court that post-2015 amendment a mere contravention of the substantive law of India, by itself, is no longer a ground available to set aside an arbitral award.”

“As per section 34 (2-A) as introduced vide 2015 amendment, a domestic arbitral award may also be set aside if the Court finds that it is vitiated by patent illegality appearing on the face of the award and it has been provided that an award shall not be set aside merely on the ground of an erroneous application of the law or by reappreciation of evidence. Here, there must be patent illegality appearing on the face of the award, which refers to such illegality as goes to the root of the matter but which does not amount to mere erroneous application of the law,” the bench added.

The ruling came in an appeal directed against the judgment dated 25th February 2020 passed by the Presiding Officer, Commercial Court, Ranchi in a Commercial Case dismissing the petition filed on behalf of the appellant under section 34 of the Arbitration and Conciliation Act, 1996 challenging the award dated 11th March 2018 passed by the learned Arbitrator.

A prayer was also made to set aside the award passed by the Arbitrator, directing the Appellant to restore the dealership within three months from the award date, failing which would entitle the first Respondent to damages at the rate of Rs 40,000 per month from the cancellation of the dealership until its restoration.

The appellant had issued an advertisement for the appointment of retail outlet dealers for several locations in Jharkhand on 27th June 2010, guided by the Brochure for Selection of Petrol/Diesel Retail Outlet Dealers dated 15.09.2008. Respondent No. 1 had applied for the location Barsot, Hazaribagh, vide an application dated 27th July 2010.

A registered lease deed dated 3rd March 2012 for the land involved in this case was executed in favor of respondent no.1, and the appellant took possession of the land.

The subject land was partly bought by Lauki Prasad and partly by Jagdish Prasad. A complaint had been filed against respondent no. 1 for the submission of false information. A show-cause notice was issued against respondent no. 1, to which he had replied.

After considering his reply, the appellant terminated the DPSL/dealership agreement by an order dated 9th April 2016, which was challenged before the Court in a writ petition, and the Court appointed Justice Lok Nath Prasad (Retd.) as Arbitrator, who held that though wrong information was given, the wrong information given was not very serious and was made inadvertently.

Court's Findings

The Court observed that the arbitrator had passed a well-reasoned award considering the case of the respective parties and also considering that the owners of the land had executed lease deed in favour of the appellant at the instance of the claimant who was granted dealership after participating in the selection process.

The Court further observed that the arbitrator had cited reasons for allowing certain parts of the claim of damage and disallowing remaining parts of the claim of damage and accordingly, held that it cannot be said that the award of damages was non-speaking and violative of Section 31(3) of the Act of 1996.

The Court also observed that the arbitrator took a plausible view based on the materials on record and has distinguished the judgment passed in the case of Indian Oil Corporation Ltd. Vs. Amritsar Gas Service & Ors. reported in (1991) 1 SCC 533 holding that the termination order of the dealership was not passed on account of violation of any terms and conditions of the dealership agreement but on account of a complaint received by an unsuccessful participant of the selection process and the letter of intent was issued after considering the complaint.

The Court opined that the arbitrator considered the complaint on merits and rejected the same by citing reasons by interalia holding that the two persons who had given the affidavit were the co-owners of the offered property being their ancestral property and a lease deed was formally entered at the instance of the claimant on which the petrol pump was running.

The Court noted that fact remained that on the same property offered by the claimant, the dealership is being run by the appellant and the owners of the property are in support of the claimant and have stated that they entered into a lease with respect of the land at the instance of the claimant.

The Court further noted that it was also not denied that all the facilities at the petrol pump including the manpower employed by the claimant were being used by the appellant for running the petrol pump and the claimant has been ousted by issuing a termination letter based on the complaint made much before entering into dealership agreement by an unsuccessful participant in the selection process.

The Court opined, “After the introduction of section 34(2-A) in the Act of 1996 there is no scope of interference even when award suffers from erroneous application of law. This Court is of the considered view that the award did not call for any interference under the Act of 1996 and does not suffer from any patent illegality on the face of the award.”

“Even if it is assumed for the sake of argument that there was any error in connection with the appreciation of law on the point of applicability of the provisions of the Specific Relief Act the same cannot be said to be an error apparent on the face of the award,” the Court added.

The Court asserted that what is not subsumed within “the fundamental policy of Indian law”, namely, the contravention of a statute not linked to public policy or the public interest, cannot be brought in by the backdoor when it comes to setting aside an award on the ground of patent illegality.

The Court further asserted that all instances of contravention of law of India committed by the arbitrator would not call for interference under section 34(2-A) of the Act of 1996.

“Moreover, the case of the appellant is that the learned arbitrator has ignored the judgment passed by the Hon'ble Supreme Court in the case of Amritsar Gas Service (supra) . However, this court finds that the learned arbitrator has considered the judgment passed in the case of Amritsar Gas Service (supra) distinguished the same, and has taken a plausible view. Otherwise also the award on the point of applicability of the judgment passed in the case of Amritsar Gas Service (supra) would call for a reappreciation of evidence and deliberations on the point of law in the given facts and circumstances of the case which is not permissible in law.” the Court held while dismissing the Appeal.

Appearance:

For the Appellant For the Respondents: Mr. P.P.N. Roy, Senior Advocate, Mr. Chandrajit Mukherjee, Advocate

Ms. Pragati Prasad, Advocate: Mr. Ajit Kumar, Senior Advocate : Mr. Kumar Sundaram, Advocate

Case No.: Commercial Appeal No. 15 of 2020

Case Title: M/s Bharat Petroleum Corporation Limited v Anant Kumar Singh

LL Citation: 2024 LiveLaw (Jha) 10

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