Account Statements And IT Returns Relied On By Arbitral Tribunal, Have Evidentiary Value : Delhi High Court

The Delhi High Court has ruled that the arbitral award cannot be set aside on the ground that the material relied upon by the Arbitral Tribunal does not measure up to the standards under the Indian Evidence Act, 1872. The Bench, consisting of Justices Vibhu Bakhru and Amit Mahajan, held that an award passed by the Arbitral Tribunal, by relying upon the Bank Account statements and the Income Tax Return furnished by the Claimant, cannot be said to be an unreasoned award or an award based on no evidence. The respondent/lessor Kanta Batra entered into a Lease Deed with the appellant/ lessee M/s. Scholastic India Pvt. Ltd. After a fire broke out in the leased premises, the appellant terminated the lease on the ground that it constituted a force majeure event. Alleging that the fire broke out on account of the negligence of the appellant/lessee, the respondent contended that the appellant was not entitled to terminate the lease during the lock-in period. Thus, the respondent/lessor claimed that the appellant was liable to pay the lease rentals for the remaining period as well as the cost of repairs incurred by the respondent. The lessee raised a counter claim that it was entitled to the refund of the security deposit, deposited by it as per the terms of the Lease Deed. The disputes between the parties were referred to arbitration and the Arbitral Tribunal found that the fire had broken out as a result of the failure of the appellant to maintain its electrical equipment and hence, the respondent/lessor was entitled to the cost of repairs and damages. For quantification of the damages payable to the lessor, the Tribunal relied on the bank statements of the lessor which indicated the amounts spent by it on the repairs of the leased premises. Accordingly, the Tribunal passed an award that the lessor was entitled to a certain sum in view of the expenditure incurred by it on the re-construction of the leased premises. Challenging the arbitral award, the appellant Scholastic India filed an application under Section 34 of the Arbitration and Conciliation Act, 1996 (A&C Act) before the Commercial Court. The Commercial Court held that the Arbitral Tribunal had grossly erred in relying on the Income Tax Return and the bank statements furnished by the respondent, since the same were not supported by a certificate under Section 65B of the Indian Evidence Act, 1872. Holding that no person can be saddled with any liability on the basis of any entries in the books of accounts, the Commercial Court ruled that the award was based on no evidence and hence, it suffered from patent illegality. However, the Commercial Court rejected the contention of the appellant that it was entitled to the refund of the security deposit. Both the parties challenged the order passed by the Commercial Court by filing an appeal under Section 37 of the A&C Act before the Delhi High Court. The appellant/lessee Scholastic India challenged the order of the Commercial Court rejecting its claim for refund of the security deposit. The respondent/lessor Kanta Batra challenged the order of the Commercial Court on the ground that the Commercial Court had re-appreciated the evidence regarding the quantification of damages awarded to the respondent by the Arbitral Tribunal, which was being beyond the scope of Section 34 of the A&C Act. The Delhi High Court noted that under Section 34 of the A&C Act, the scope of interference with an arbitral award is limited. Holding that a court cannot reappreciate or re-evaluate the evidence and supplant its opinion over that of the Arbitral Tribunal, the High Court ruled that the Commercial Court had committed an error by re-appreciating and re-evaluating the evidence in the proceedings under Section 34 of the A&C Act. Observing that the Indian Evidence Act, 1872 does not apply to the proceedings before an Arbitral Tribunal, the Court held that an arbitral award cannot be faulted on the ground that it is non-compliant with the Indian Evidence Act. The Court further noted that Section 19 (1) of the A&C Act expressly provides that the Arbitral Tribunal would not be bound by the Indian Evidence Act or the Code of Civil Procedure, 1908. "In view of the above, an arbitral award cannot be faulted on the ground that it is non-compliant with the said statutes. Having stated the above, it is necessary to clarify that there may be instances where an arbitral award may be faulted as being in conflict with the public policy of India or on the ground of patent illegality, including that it falls foul of the most basic principles underlying the Indian Evidence Act, 1872. But that does not mean that in all cases where the material relied upon by the Arbitral Tribunal does not measure up to the standards under the Indian Evidence Act 1872, the arbitral award would be liable to be set aside.", the Court said. The Court added that an arbitral...

Account Statements And IT Returns Relied On By Arbitral Tribunal, Have Evidentiary Value : Delhi High Court

Parina Katyal

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