Case Note & Summary
The Union of India (petitioner) filed a petition under Section 34 of the Arbitration and Conciliation Act, 1996, challenging a majority arbitral award dated 14 September 2010. The dispute arose from a contract for earthwork and bridge approaches in the Narkhed-Amravati New BG line project, awarded to M/s Vinay Agarwal (respondent) on 11 July 1996 for Rs.67,21,043 with a 12-month completion period. The contract was governed by the General Condition of Contract. Disputes arose, and the respondent invoked arbitration on 14 January 2002. By order dated 11 February 2005, a learned Judge directed appointment of an arbitral tribunal. The respondent filed a statement of claim for 14 claims totaling Rs.3,79,24,214 plus interest, and the petitioner filed counter claims. No oral evidence was led. The majority award allowed claims 1, 4, 5, 7, and 13 in favor of the respondent and rejected the petitioner's counter claims. The petitioner challenged the award only regarding claims 5, 7, and 13 and the rejection of counter claims, conceding that claims 1 and 4 were not challenged. The court examined the award and found that the arbitral tribunal had not applied its mind to the contractual provisions or evidence for claims 5 and 7. Claim 5 for extra work was allowed without any supporting evidence or reference to contract terms. Claim 7 for refund of security deposit was allowed without considering the contract clause regarding forfeiture. Consequently, claim 13 for interest was also set aside. The court held that the award was patently illegal and perverse, and set aside claims 5, 7, and 13. The rejection of counter claims was upheld as the petitioner did not press that ground. The petition was partly allowed.
Headnote
A) Arbitration Law - Setting Aside Award - Section 34 of the Arbitration and Conciliation Act, 1996 - Patent Illegality - The court examined whether the majority award allowing claims 5, 7, and 13 was patently illegal. The court held that the arbitral tribunal failed to apply its mind to the contractual provisions and evidence, making the award liable to be set aside. (Paras 5-10) B) Arbitration Law - Claim for Extra Work - Section 34 of the Arbitration and Conciliation Act, 1996 - Lack of Evidence - Claim 5 for extra work was allowed without any supporting evidence or reference to contract terms. The court held that the award was perverse and set it aside. (Paras 7-8) C) Arbitration Law - Claim for Refund of Security Deposit - Section 34 of the Arbitration and Conciliation Act, 1996 - Non-Application of Mind - Claim 7 for refund of security deposit was allowed without considering the contract clause regarding forfeiture. The court held that the award was patently illegal and set it aside. (Paras 9-10) D) Arbitration Law - Claim for Interest - Section 34 of the Arbitration and Conciliation Act, 1996 - Consequential - Claim 13 for interest was allowed as a consequence of other claims. Since the other claims were set aside, the court also set aside this claim. (Para 10)
Issue of Consideration
Whether the majority award allowing claims 5, 7, and 13 and rejecting counter claims is liable to be set aside under Section 34 of the Arbitration and Conciliation Act, 1996 for being patently illegal and perverse.
Final Decision
The court partly allowed the petition. It set aside the majority award in respect of claims 5, 7, and 13. The award in respect of claims 1 and 4 and the rejection of counter claims were upheld.
Law Points
- Arbitration award can be set aside under Section 34 of the Arbitration and Conciliation Act
- 1996 if it is patently illegal or perverse
- Arbitrator must apply mind to contractual provisions and evidence
- No oral evidence required but documentary evidence must be considered
- Counter claims can be rejected if not proved
