Case Note & Summary
The petitioner, Anindya Mukherjee, an expert in marketing of coating, flooring and concrete, joined Thortex Coating (later renamed Clean Coats Pvt. Ltd.) as Senior Sales Executive on 11/12/1999. He was promoted to Assistant Project Manager on 01/04/2001 and signed an agreement with confidentiality and related clauses. On 09/08/2006, he was posted as Manager Project and Sales. On 05/12/2007, both parties entered into a fresh agreement containing confidentiality and non-compete clauses. The petitioner resigned on 12/02/2009 and joined a competitor, allegedly breaching the agreement. The respondent initiated arbitration, and the sole arbitrator passed an award on 14/07/2009 directing the petitioner to pay Rs.9,40,167.50 as liquidated damages, Rs.70,040 towards salary and dues with interest, and costs of Rs.30,000, totaling Rs.10,40,207.50, with post-award interest at 18% p.a. if not paid within 30 days. The petitioner challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996, arguing that the arbitrator had no jurisdiction, the liquidated damages were excessive, and the award was perverse. The court examined the limited scope of interference under Section 34 and found that the arbitrator's findings were based on evidence, the liquidated damages were in accordance with the agreement and Section 74 of the Indian Contract Act, 1872, and there was no patent illegality or perversity. The court dismissed the petition, upholding the award in its entirety.
Headnote
A) Arbitration - Section 34 Challenge - Scope of Interference - The court considered the limited grounds for setting aside an arbitral award under Section 34 of the Arbitration and Conciliation Act, 1996, including patent illegality, perversity, and violation of public policy. The court held that the arbitrator's findings on breach of confidentiality and non-compete clauses were based on evidence and not perverse, and the award did not suffer from any patent illegality. (Paras 1-10)
B) Contract - Liquidated Damages - Section 74 of Indian Contract Act, 1872 - The arbitrator awarded Rs.9,40,167.50 as liquidated damages for breach of confidentiality and non-compete clauses. The court upheld this, noting that the agreement provided for liquidated damages and the arbitrator's quantification was reasonable and not arbitrary. (Paras 11-20)
C) Employment - Salary and Dues - The arbitrator awarded Rs.70,040 towards salary and other dues with interest @ 10% p.a. from 12/02/2009 till the date of award. The court found no error in this part of the award as it was based on admitted facts. (Paras 21-25)
D) Arbitration - Interest - Post-Award Interest - The arbitrator directed payment of interest @ 18% p.a. on the total amount if not paid within 30 days. The court held that this was within the arbitrator's discretion under Section 31 of the Arbitration and Conciliation Act, 1996 and not excessive. (Paras 26-30)
E) Arbitration - Costs - The arbitrator awarded costs of Rs.30,000 under Section 31 of the Act. The court upheld this as reasonable. (Paras 31-35)
Issue of Consideration
Whether the arbitral award dated 14/07/2009 is liable to be set aside under Section 34 of the Arbitration and Conciliation Act, 1996 on grounds of patent illegality, perversity, or violation of public policy.
Final Decision
The court dismissed the petition and upheld the arbitral award dated 14/07/2009 in its entirety.
Law Points
- Scope of Section 34 of Arbitration and Conciliation Act
- 1996
- Liquidated damages under Section 74 of Indian Contract Act
- 1872
- Breach of confidentiality and non-compete clauses
- Interest on damages
- Costs of arbitration
Case Details
2010 LawText (BOM) (10) 75
Arbitration Petition No. 947 of 2009
Mr. Sugandh Deshmukh for the petitioner, Mr. Tushar P. Gujjar i/by M/s. Ashwin Ankhad & Co. for the Respondent
Clean Coats Private Limited
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Nature of Litigation
Petition under Section 34 of the Arbitration and Conciliation Act, 1996 challenging an arbitral award.
Remedy Sought
Setting aside of the arbitral award dated 14/07/2009.
Filing Reason
The petitioner alleged that the arbitrator had no jurisdiction, the liquidated damages were excessive, and the award was perverse and contrary to public policy.
Previous Decisions
The sole arbitrator passed an award on 14/07/2009 directing the petitioner to pay Rs.9,40,167.50 as liquidated damages, Rs.70,040 towards salary and dues with interest, and costs of Rs.30,000, totaling Rs.10,40,207.50, with post-award interest at 18% p.a. if not paid within 30 days.
Issues
Whether the arbitral award is liable to be set aside under Section 34 of the Arbitration and Conciliation Act, 1996 on grounds of patent illegality, perversity, or violation of public policy.
Whether the arbitrator had jurisdiction to decide the dispute.
Whether the award of liquidated damages under Section 74 of the Indian Contract Act, 1872 was excessive and arbitrary.
Submissions/Arguments
The petitioner argued that the arbitrator had no jurisdiction as the agreement dated 05/12/2007 was not validly executed.
The petitioner contended that the liquidated damages of Rs.9,40,167.50 were excessive and not based on any actual loss.
The petitioner submitted that the award was perverse and contrary to public policy.
The respondent argued that the arbitrator's findings were based on evidence and within the scope of the agreement.
The respondent submitted that the liquidated damages were in accordance with the agreement and Section 74 of the Indian Contract Act, 1872.
Ratio Decidendi
The court held that the scope of interference under Section 34 of the Arbitration and Conciliation Act, 1996 is limited to grounds of patent illegality, perversity, or violation of public policy. The arbitrator's findings on breach of confidentiality and non-compete clauses were based on evidence and not perverse. The award of liquidated damages was in accordance with the agreement and Section 74 of the Indian Contract Act, 1872, and the quantification was reasonable. The award of salary dues, interest, and costs was also upheld as within the arbitrator's discretion.
Judgment Excerpts
The Petitioner has challenged award dated 14th July, 2009, passed by the nominated sole Arbitrator, in view of an agreement dated 05/12/2007 (the agreement) between the parties, under Section 34 of the Arbitration and Conciliation Act, 1996 (for short, the Arbitration Act).
I direct the Respondent to pay Rs.9,40,167.50 towards liquidated damages to the Claimant within 30 days from the date of publication of this order.
I further direct that in case the Respondent does not pay the aforesaid amount within 30 days as directed, the Respondent is liable to pay interest to the Claimant on the ordered amount @ 18% p.a. from the expiry of 30 days as aforesaid till payment, u/s. 31 of the Act.
Procedural History
The petitioner joined the respondent company on 11/12/1999, was promoted on 01/04/2001 and signed an agreement with confidentiality clauses. On 05/12/2007, a fresh agreement was signed. The petitioner resigned on 12/02/2009 and joined a competitor. The respondent initiated arbitration. The sole arbitrator passed an award on 14/07/2009. The petitioner filed Arbitration Petition No. 947 of 2009 under Section 34 of the Arbitration and Conciliation Act, 1996 challenging the award. The petition was heard and dismissed on 28/10/2010.
Acts & Sections
- Arbitration and Conciliation Act, 1996: Section 31, Section 34
- Indian Contract Act, 1872: Section 74
