Bombay High Court Upholds Arbitral Award Denying Specific Performance to Joint Venture Partner in Shareholders’ Agreement Dispute. Petitioner Failed to Prove Readiness and Willingness to Perform Its Part, Including Share Capital Contribution; Contract Involved Continuous Supervision Under Section 16(c) of Specific Relief Act, 1963.

Challenge to an arbitral award under Section 34 of the Arbitration and Conciliation Act, 1996, arising from a joint venture agreement for a super speciality hospital.

The petitioner sought to set aside the arbitral award to the extent it denied specific performance of the shareholders’ agreement and damages, and to uphold the award only insofar as it granted reimbursement.

The petitioner contested the arbitrator’s findings that it had breached its obligation to contribute share capital, that obligations were not reciprocal or simultaneous, and that specific performance could not be granted due to the nature of the contract and petitioner’s lack of readiness.

The sole arbitrator, Justice (Retd.) V.P. Tipnis, passed an award on 23-2-2008, holding that the petitioner failed to prove its case for specific performance and damages due to its breach of the share capital contribution obligation, but awarded Rs.15,33,041 with 18% interest as reimbursement of expenses.

Whether the arbitrator’s findings on Issues Nos. 5 and 6 (petitioner’s failure to subscribe share capital and whether obligations were simultaneous/reciprocal) were perverse and contrary to record. Whether the arbitrator erred in declining specific performance of the shareholders’ agreement contrary to Section 16(c) of the Specific Relief Act, 1963, and on the ground that the contract involved continuous supervision, and whether the denial of damages was unjustified.

Petitioner argued that the arbitrator’s findings on share capital contribution and reciprocal obligations were perverse as the respondent had waived any breach and the obligations were simultaneous; the denial of specific performance was arbitrary and ignored that the respondent’s termination was invalid; the petitioner had always been ready and willing. Respondent contended that the award was reasoned and within the arbitrator’s discretion; specific performance is discretionary and the contract’s minute details made it unsuited for specific performance; the petitioner’s breach was established, and the court’s jurisdiction under Section 34 is extremely limited.

Under Section 34 of the Arbitration and Conciliation Act, 1996, the court does not sit in appeal and cannot reappreciate evidence; interference is warranted only if the award is patently illegal or the findings are perverse. The arbitrator’s discretion to refuse specific performance under Section 16(c) of the Specific Relief Act, 1963, on grounds of the contract requiring continuous supervision and the claimant’s breach, is not to be lightly interfered with if based on appreciation of evidence.

The learned Arbitrator has rejected the Petitioner’s claim for the grant of specific performance of the agreement by holding that the Petitioner has committed breach of its obligation under Clause 6.2 of the agreement to contribute to the share capital of the Joint Venture Company. The learned Arbitrator, however, has held that the Petitioner is entitled to reimbursement of the amount spent by it and therefore has passed a monetary decree in favour of the Petitioner and has directed the Respondent to pay to the claimant/Petitioner an amount of Rs.15,33,041/- with interest at the rate of 18% p.a. from 12-9-2003 till the date of realisation. The award which is impugned in this petition is a detailed award. The learned Arbitrator has given reasons in detail for each of the finding recorded by him. The Award runs into about 250 pages.

On 10-5-2001, the parties entered into a shareholders’ agreement for a joint venture to commission a super speciality hospital. The joint venture company was incorporated on 20-8-2001, and the State executed a lease agreement on 14-3-2002. Disputes arose, and the respondent terminated the agreement on 12-9-2003. Justice (Retd.) V.P. Tipnis was appointed sole arbitrator, who framed 15 issues and recorded evidence. The arbitrator made his award on 23-2-2008, partly allowing the claim. The petitioner filed the present arbitration petition under Section 34 in 2008, which was heard and dismissed by the High Court on 16-6-2011.

• Arbitration and Conciliation Act, 1996: Section 34
• Specific Relief Act, 1963: Section 16(c)