Bombay High Court Considers Section 34 Petition to Set Aside Arbitral Award for Jurisdictional Excess and Violation of Natural Justice. Petitioner Alleges Arbitrator Entertained Claims Beyond Scope of Reference and Relied on Unproved Certificates, Rendering Award Patently Illegal.

Petition under Section 34 of the Arbitration and Conciliation Act, 1996 challenging an arbitral award arising from a construction contract dispute.

Petitioner (original respondent in arbitration) seeks setting aside of the arbitral award dated 8 August 2012.

Petitioner alleges that the arbitrator exceeded jurisdiction by allowing claims beyond the scope of reference and relied on unproved documents, violating natural justice.

Arbitral award dated 8 August 2012 allowed some claims of respondent and partly allowed counterclaims, directing petitioner to pay Rs.1,65,64,239.69 plus interest and other amounts, with set-off for counterclaim.

Whether the arbitrator exceeded his jurisdiction by entertaining claims beyond the amount and nature specified in the notice invoking arbitration, thereby acting beyond the scope of reference. Whether the arbitral award is vitiated by patent illegality and violation of natural justice due to reliance on unproved certificates and perverse findings.

Petitioner argued that the arbitrator's jurisdiction was limited to the claims stated in the respondent's notice dated 19 June 2009; the statement of claim inflated the sum from Rs.1,97,05,428 to Rs.7,18,87,248, which was beyond the terms of reference, and the arbitrator failed to consider this jurisdictional objection. Petitioner contended that the award relied on three certificates issued by the Project Architect (dated 6 October 2008, 6 March 2009, and 25 May 2009) without the Architect being examined as a witness, making such evidence unproved and inadmissible, in violation of the Evidence Act and principles of natural justice. Petitioner submitted that the award suffered from perversity because the arbitrator accepted a certificate stating completion of the Spa building first floor slab, contrary to the admission of the respondent's own witness that the slab was not cast.

It is submitted by the learned senior counsel that scope of the arbitration before the learned arbitrator was limited to the claims referred in the letter dated 19th June 2009 addressed by the learned advocate for the respondent and the letter dated 15th July 2009 addressed by the petitioner. He submits that the respondent had invoked arbitration agreement vide their letter dated 19th June 2009 seeking reference to the arbitration of claims of the value of Rs.3,13,97,099/- which included a principal sum of Rs.1,97,05,428.22 and interest thereon totalling to Rs.3,13,97,099/-. He submits that the respondent, however raised claim for an amount of Rs.7,18,87,248/- in their statement of claims. It is submitted by the learned senior counsel that since the three certificates alleged to have been issued by the Project Architect were not proved and could not be relied upon, the learned arbitrator could not have rejected the contention of the petitioner that the quality of the material used by the respondent which was poor and inferior and the poor workmanship of the workers engaged by the respondent.

In 2007, petitioner invited tenders for construction work; respondent's bid accepted on 12 October 2007 with completion due by 11 October 2008. Respondent allegedly failed to complete work by April 2009 and stopped work on 30 April 2009. On 11 August 2009, petitioner issued show cause notice threatening termination. Respondent through notice dated 19 June 2009 demanded payment of Rs.1,97,05,428 plus interest and invoked arbitration. Petitioner terminated contract and jointly appointed former High Court judge as sole arbitrator on 17 August 2009, specifying terms of reference in letter dated 29 August 2009. Respondent filed statement of claim with inflated amounts; petitioner filed written statement, counterclaim, and raised jurisdictional objection. Arbitrator passed award on 8 August 2012 allowing some claims and part of counterclaim. Petitioner filed present petition under Section 34 in 2013.

• Arbitration and Conciliation Act, 1996: Section 34