Deliberate Departure From Terms Of Contract May Tantamount To A Malafide Action By Arbitrator: Jharkhand High Court

The Jharkhand High Court has reiterated that the arbitrator derives authority from the contract and thus, the award passed by him in manifest disregard to the terms of the contract would be arbitrary in nature. The bench of Justice Anubha Rawat Choudhary remarked that deliberate departure from the contract amounts not only to manifest disregard of its authority or misconduct on the part of the arbitrator, but it may also tantamount to a malafide action. The Court, while dealing with an appeal filed under Section 37 of the Arbitration and Conciliation Act, 1996 (A&C Act) by the award debtor, rejected the argument raised by it that the Arbitrator was duty-bound to examine the point of limitation irrespective of any plea having been raised by it before the Arbitral Tribunal. Dismissing the challenge made against the award on the ground of limitation, the Court held that the plea regarding limitation was required to be specifically raised by the appellant before the Arbitrator. The claimant/ respondent, M/s Rajdhani Carriers Pvt Ltd, was awarded a contract for transportation and loading of coal by the appellant, Central Coalfields Limited. The claim raised by Rajdhani Carriers for refund of security deposit made under the contract, was referred to arbitration. The Arbitrator passed an award directing Central Coalfields to pay the withheld amount of security deposit to the claimant, along with interest. The appellant, Central Coalfields, challenged the arbitral award under Section 34 of the A&C Act before the District Court, who upheld the arbitral award. Against this, Central Coalfields filed an appeal under Section 37 of the A&C Act before the Jharkhand High Court. Central Coalfields contended that the claims raised by the claimant were barred by limitation and that the Arbitrator had not returned any finding on the point of limitation. Perusing the arbitral award, the High Court reckoned that no plea of limitation was mentioned in the award. Referring to the facts of the case, the bench observed, “This court finds that on the one hand, from the perusal of the award, it appears that the learned arbitrator has recorded the submission of both the parties but no ground of limitation was taken by the appellant before the learned arbitrator and on the other hand, at the stage of petition under section 34 of the Act of 1996, no such ground has been raised regarding non consideration of any point raised in the defence statement filed by the appellant.” To this, the appellant, Central Coalfields, submitted before the High Court that the Arbitrator was duty-bound to examine the point of limitation irrespective of any plea having been raised by it before the Arbitral Tribunal. Rejecting the argument raised by the appellant, the Court remarked, “The point of limitation, if any, was required to be specifically raised by the appellant before the learned arbitrator who could have considered such plea after giving an opportunity to the claimant.” The bench thus concluded, “This court is of the considered view that non consideration of point of limitation, which was never raised before the learned arbitrator, does not call for any interference in view of the limited jurisdiction under section 34 of the aforesaid Act of 1996. The learned court below has rightly refused to interfere with the award.” Central Coalfields further contended that since the claimant failed to produce the ‘completion certificate’ before the Arbitrator, the claim with regard to refund of security deposit was barred under the relevant clause contained in the Contract. While reiterating that the Arbitrators have no jurisdiction to make an award against the specific terms of the contract executed between the parties, the bench said, “It is well settled that the arbitrator derives authority from the contract and if he acts in manifest disregard of the contract, the award given by him would be an arbitrary one; that this deliberate departure from the contract amounts not only to manifest disregard of the authority or misconduct on his part, but it may tantamount to mala fide action.” Perusing the arbitral award, the Court noted that the Arbitrator had concluded that since the performance of the claimant had been satisfactory, the security money should have been released after completion of the work. Conceding that for release of security deposit, a ‘completion certificate’ from the concerned authority was required, the Tribunal, however, opined that the contractor was not required to enclose such a certificate under the relevant clause. While holding that the interpretation of a particular condition in the agreement is within the jurisdiction of the arbitrator, the High Court concluded that the view taken by the Arbitrator was certainly based on appreciation of evidence and the interpretation of the agreement between the parties. Further, the same was ...

Deliberate Departure From Terms Of Contract May Tantamount To A Malafide Action By Arbitrator: Jharkhand High Court

Parina Katyal

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