Case Note & Summary
The appeal arose from a dispute between a construction and engineering company (appellant) and an elevator manufacturer (first respondent) regarding contracts for supply, erection, and installation of elevators and escalators. The parties entered into base agreements dated 19.12.2005 and subsequent definitive agreements on 16.02.2006. Appellant needed five elevators and seven escalators for two projects, but only four elevators and one escalator were supplied. Payment disputes emerged, with appellant paying Rs.72,33,490 and the first respondent claiming a balance of Rs.15,93,490 along with cancellation charges. Appellant raised a counter-claim totaling Rs.11,98,44,385 for loss of business income, non-supply of equipment, mental agony, and loss of goodwill, relying on termination notices from tenants. The parties resorted to arbitration under Section 11(6) of the Arbitration and Conciliation Act, 1996, leading to a common award dated 20.10.2010. The sole arbitrator allowed the first respondent's claim for unpaid dues, partially allowed appellant's counter-claim by awarding Rs.1,10,30,700 for loss of business and Rs.2,50,00,000 for non-supply of equipment, and rejected the first respondent's claim for cancellation charges. The first respondent filed a petition under Section 34 challenging the award to the extent it allowed the counter-claim. The Single Judge, by order dated 04.09.2019, set aside that portion of the award, finding the arbitrator's findings perverse and contrary to the evidence and the contract's exclusion clause. Aggrieved, the appellant filed the present appeal under Section 37. The Division Bench examined the limited scope of interference under Section 34 and 37, emphasizing that a court cannot reappreciate evidence unless the award is patently illegal or against public policy. It noted that Clause B-6 of the base agreement clearly excluded liability for consequential damages, and the arbitrator ignored this clause while awarding loss of business income and non-supply damages. There was no evidence linking the tenant terminations to the non-supply of escalators. The court held that the Single Judge correctly set aside the perverse portion of the award and dismissed the appeal, thereby restoring the award only to the extent of the first respondent's claim for unpaid dues.
Headnote
A) Arbitration Law - Scope of Interference under Section 34 and 37 - Arbitration and Conciliation Act, 1996, Sections 34, 37 - The court reiterated that the scope of challenge under Section 34 is very narrow, and under Section 37 is even narrower. Interference with an arbitral award is permissible only if it falls within the heads under Section 34(2)(a) or (b)(i) or is in conflict with public policy under Section 34(2)(b)(ii). The court does not act as a court of appeal; findings of the arbitrator can be interfered with only when they are arbitrary, capricious, or perverse, or when the conscience of the court is shocked, or when the illegality goes to the root of the matter. The arbitrator is the ultimate master of the quantity and quality of evidence, and an award based on little evidence or evidence that does not meet a trained legal mind's standard cannot be held invalid. Held that the Single Judge rightly set aside the award as perverse because the arbitrator ignored material clauses and there was no evidence to support the counter-claims. (Paras 10-11) B) Contract Law - Interpretation of Exclusion Clause - Contractual Limitation of Liability - Agreement between parties for supply and installation of elevators and escalators - The agreement contained Clause B-6 in the base agreement dated 19.12.2005, which expressly excluded liability for consequential damages either direct or indirect, and limited the seller's liability to the terms specified. The arbitrator awarded damages for loss of business income and non-supply of equipment, which were consequential in nature and fell within the exclusion clause. Held that the arbitrator ignored this clause and therefore the award was perverse. The Single Judge was correct in setting aside the award to the extent it granted such damages. (Paras 12, 6, 8) C) Arbitration Law - Perversity in Award - Requirement of Evidence and Linkage - Arbitration and Conciliation Act, 1996, Sections 34, 37 - The appellant claimed loss of business income based on termination notices from commercial tenants. However, there was no evidence linking the termination of tenancies to the non-supply of escalators. The arbitrator awarded Rs. 1,10,30,700 for loss of business income and Rs. 2,50,00,000 for non-supply of equipment without any basis in evidence or contractual stipulation. The Single Judge found these findings perverse and set aside that portion of the award. Held that the appellate court under Section 37 cannot re-appreciate evidence; if the Single Judge's order is well-reasoned and does not suffer from legal infirmity, no interference is warranted. (Paras 6, 8, 9)
Issue of Consideration
Whether the learned Single Judge was justified in setting aside the arbitral award under Section 34 of the Arbitration and Conciliation Act, 1996 on the grounds that the findings were perverse, contrary to the evidence, and ignored the explicit exclusion clause in the contract.
Final Decision
Decision not clearly stated
Law Points
- Legal points not extracted
- Scope of interference under Section 34 and Section 37 of Arbitration and Conciliation Act
- 1996 is narrow
- court does not act as court of appeal
- interference permissible only when findings are arbitrary
- capricious
- or perverse
- arbitrator is ultimate master of quantity and quality of evidence
- award based on little evidence or evidence not measuring up to trained legal mind cannot be held invalid if approach is not arbitrary or capricious
- public policy test under Section 34(2)(b)(ii) requires conscience of court to be shocked or illegality going to root of matter
- contractual exclusion clause limiting liability for consequential damages must be given effect
- loss of business income and non-supply claims require proof linking breach to losses.
