Arbitration and Conciliation Act,1996; Section 34– While exercising power under Section 34 of the 1996 Act the Court does not sit in appeal over the arbitral award. Interference with an arbitral award is only on limited grounds as set out in Section 34 of the 1996 Act. A possible view by the arbitrator on facts is to be respected as the arbitrator is the ultimate master of the quantity and quality of evidence to be relied upon. It is only when an arbitral award could be categorized as perverse, that on an error of fact an arbitral award may be set aside. Further, a mere erroneous application of the law or wrong appreciation of evidence by itself is not a ground to set aside an award- An application to set aside an arbitral award on the ground of improper or inadequate reasons, or lack of reasons, -Awards can broadly be placed in three categories: (1) where no reasons are recorded, or the reasons recorded are unintelligible; (2) where reasons are improper, that is, they reveal a flaw in the decision- making process; and (3) where reasons appear inadequate. Awards falling in category (1) are vulnerable as they would be in conflict with the provisions of Section 31(3)-Therefore, such awards are liable to be set aside under Section 34, unless (a) the parties have agreed that no reasons are to be given, or (b) the award is an arbitral award on agreed terms under Section 30. Awards falling in category (2) are amenable to a challenge on ground of impropriety or perversity, strictly in accordance with the grounds set out in Section 34 – Awards falling in category (3) require to be dealt with care. In a challenge to such award, before taking a decision the Court must take into consideration the nature of the issues arising between the parties in the arbitral proceedings and the degree of reasoning required to address them. The Court must thereafter carefully peruse the award, and the documents referred to therein. If reasons are intelligible and adequate on a fair-reading of the award and, in appropriate cases, implicit in the documents referred to therein, the award is not to be set aside for inadequacy of reasons. However, if gaps are such that they render the reasoning in support of the award unintelligible, or lacking, the Court exercising power under Section 34 may set aside the award (Para 71)- In a case where reasons appear insufficient or inadequate, if, on a careful reading of the entire award, coupled with documents recited/ relied therein, the underlying reason, factual or legal, that forms the basis of the award, is discernible/ intelligible, and the same exhibits no perversity, the Court need not set aside the award while exercising powers under Section 34 or Section 37 , rather it may explain the existence of that underlying reason while dealing with a challenge laid to the award. In doing so, the Court does not supplant the reasons of the arbitral tribunal but only explains it for a better and clearer understanding of the award. (Para 148)- Scope of interference with the interpretation / construction of a contract accorded in an arbitral award. An arbitral tribunal must decide in accordance with the terms of the contract. In a case where an arbitral tribunal passes an award against the terms of the contract, the award would be patently illegal. However, an arbitral tribunal has jurisdiction to interpret a contract having regard to terms and conditions of the contract, conduct of the parties including correspondences exchanged, circumstances of the case and pleadings of the parties. If the conclusion of the arbitrator is based on a possible view of the matter, the Court should not intefere. But where, on a full reading of the contract, the view of the arbitral tribunal on the terms of a contract is not a possible view, the award would be considered perverse and as such amenable to interference. (Para 72)
Arbitration and Conciliation Act,1996; Explanation 1 to Section 34 -The term ‘legal justice’ is not used in Explanation 1, therefore simple conformity or nonconformity with the law is not the test to determine whether an award is in conflict with the public policy of India in terms of Explanation 1. The test is that it must conflict with the most basic notions of justice. For lack of any objective criteria, it is difficult to enumerate the ‘most basic notions of justice’. More so, justice to one may be injustice to another-Considering that the concept of justice is opentextured, and notions of justice could evolve with changing needs of the society, it would not be prudent to cull out “the most basic notions of justice”. Suffice it to observe, they ought to be such elementary principles of justice that their violation could be figured out by a prudent member of the public who may, or may not, be judicially trained, which means, that their violation would shock the conscience of a legally trained mind. In other words, this ground would be available to set aside an arbitral award, if the award conflicts with such elementary/ fundamental principles of justice that it shocks the conscience of the Court. (Para 58)
Arbitration and Conciliation Act,1996; Section 34– “Patent illegality appearing on the face of the award” refers to such illegality as goes to the root of matter, but which does not amount to mere erroneous application of law- What is not subsumed within “the fundamental policy of Indian law”, namely, the contravention of a statute not linked to ‘public policy’ or ‘public interest’, cannot be brought in by the backdoor when it comes to setting aside an award on the ground of patent illegality- reappreciation of evidence is not permissible under this category of challenge to an arbitral award- (Para 62) -“Perversity”- A decision which is perverse, while no longer being a ground for challenge under “public policy of India”, would certainly amount to a patent illegality appearing on the face of the award- An award based on no evidence, or which ignores vital evidence, would be perverse and thus patently illegal- Test to determine whether a decision of an arbitral tribunal could be considered perverse. In this context, it was observed that where: (i) a finding is based on no evidence; or (ii) an arbitral tribunal takes into account something irrelevant to the decision which it arrives at; or (iii) ignores vital evidence in arriving at its decision, such decision would necessarily be perverse- Howeever, when a court applies these tests it does not act as a court of appeal and, consequently, errors of fact cannot be corrected. Though, a possible view by the arbitrator on facts has necessarily to pass muster as the arbitrator is the ultimate master of the quantity and quality of evidence to be relied upon-An award based on little evidence or on evidence which does not measure up in quality to a trained legal mind would not be held to be invalid on that score. (Para 63-67)
Contract law – Interpretation – Business Efficacy Doctrine – Ordinarily, terms of the contract are to be understood in the way the parties wanted and intended them to be. In agreements of arbitration, where party autonomy is the grund norm, how the parties worked out the agreement, is one of the indicators to decipher the intention, apart from the plain or grammatical meaning of the expressions used-. However, reading an unexpressed term in an agreement would be justified on the basis that such a term was always and obviously intended by the parties thereto. An unexpressed term can be implied if, and only if, the court finds that the parties must have intended that term to form part of their contract. It is not enough for the court to find that such a term would have been adopted by the parties as reasonable men if it had been suggested to them. Rather, it must have been a term that went without saying, a term necessary to give business efficacy to the contract, a term which, although tacit, forms part of the contrac- But before an implied condition, not expressly found in the contract, is read into a contract, by invoking the business efficacy doctrine, it must satisfy following five conditions: a. it must be reasonable and equitable; b. it must be necessary to give business efficacy to the contract, that is, a term will not be implied if the contract is effective without it; c. it must be obvious that “it goes without saying”; d. it must be capable of clear expression; e. it must not contradict any terms of the contract. (Para 73-75)
Arbitration and Conciliation Act,1996; Section 21 – Limitation Act,1963– if on the date of commencement of the arbitral proceeding, as referred to in Section 21 of the 1996 Act, the claim(s) is/are barred by limitation, as per the provisions of the 1963 Act, the Arbitral Tribunal will have to reject such claim(s) as barred by limitation. (Para 83)
Limitation Act,1963; Article 55- For the applicability of Article 55, four requirements should be satisfied, namely, (1) the suit should be based on a contract; (2) there must be breach of the contract; (3) the suit should be for compensation; and (4) the suit should not be covered by any other Article specially providing for it- The phrase ‘compensation for breach of contract’, as occurring in Article 55 of the Schedule to the 1963 Act, would comprehend also a claim for money due under a contract. ‘Compensation’ is a general term comprising any payment which a party would be entitled to claim on account of any loss or damage arising from a breach of a contract, and the expression has not been limited only to a claim for unliquidated damages. The expression is wide enough to include a claim for payment of a certain sum. (Para 92-95) – Even a suit for recovery of a specified amount, based on a contract, is a suit for compensation, and if the suit is a consequence of defendant breaching the contract or not fulfilling its obligation(s) thereunder, the limitation for institution of such a suit would be covered by Article 55 of the Schedule to the 1963 Act, provided the suit is not covered by any other Article specially providing for it.
Counter claim – A counterclaim is a claim made by a defendant in a suit against the plaintiff. It is a claim, independent of and separable from the plaintiff’s claim, which can be enforced by a cross action. Counterclaim preferred by the defendant in a suit is a cross suit and even if the suit is dismissed, counterclaim shall remain alive for adjudication. The purpose of the scheme relating to counterclaim is to avoid multiplicity of proceedings. (Para 120)- A counterclaim is like a cross suit, or a separate suit, and the limitation of a counterclaim is to be counted from the date of accrual of the cause of action which it seeks to espouse. As a logical corollary thereof, it is quite possible that even though a suit or a claim is within the period of limitation, the counterclaim may well be barred by limitation, if the cause of action espoused therein accrued beyond the prescribed period of limitation. (Para 124)
Limitation Act,1963; Section 18- To extend the period of limitation with the aid of Section 18, the acknowledgment must involve an admission of a subsisting jural relationship between the parties and a conscious affirmation of an intention of continuing such relationship regarding an existing liability. Such intention can be gathered from the nature of the admission. In other words, the admission in question need not be express, or regarding a precise amount, but must be made in circumstances and in words from which the court can reasonably infer that the person making the admission intended to refer to a subsisting liability as on the date of the statement. However, where an acknowledgement is in respect of a specified sum of money or a specific right only, and not in general terms, it would extend the period of limitation only in respect thereof, and not of other claims which, though may have arisen out of same jural relationship, are not specified therein. In other words, where an acknowledgement of liability is made only with reference to a portion of the claim put forward by the plaintiff/ claimant, it would extend limitation only in respect of such portion, and not of the entire claim of the plaintiff. (Para 37)
Code of Civil Procedure, 1908; Order II Rule 3 -Limitiation Act- The plaintiff may unite in the same suit several causes of action against the same defendant- Therefore, when CPC, in certain circumstances, permits combining in one action two or more distinct and independent claims, it is quite possible that one of the claims may be barred by limitation and the other may be within time. (Para 39)
Words and Phrases – Justice is the virtue by which the society/ court / tribunal gives a man his due, opposed to injury or wrong. Justice is an act of rendering what is right and equitable towards one who has suffered a wrong. Therefore, while tempering justice with mercy, the court must be very conscious, that it has to do justice in exact conformity with some obligatory law, for the reason that human actions are found to be just or unjust on the basis of whether the same are in conformity with, or in opposition to, the law. Therefore, in ‘judicial sense’, justice is nothing more nor less than exact conformity to some obligatory law; and all human actions are either just or unjust as they are in conformity with, or in opposition to, the law- when we talk about justice being done, it is about rendering, in accord with law, what is right and equitable to one who has suffered a wrong. Justice is the virtue by which the society/ court / tribunal gives a man his due, opposed to injury or wrong. Dispensation of justice in its quality may vary, dependent on person who dispenses it. A trained judicial mind may dispense justice in a manner different from what a person of ordinary prudence would do. This is so, because a trained judicial mind is likely to figure out even minor infractions of law/ norms which may escape the attention of a person with ordinary prudence. (Para 54-58)