The Delhi High Court sets aside arbitral awards containing contradictory findings. The court held that the impugned award is liable to be set aside on the ground of being perverse and being vitiated by patent illegality for the reason that there is a direct contradiction between the findings rendered in the impugned arbitral award vis-a-vis claims.
Morgan Securities & Credits Pvt Ltd filed a petition under Section 34 of the Arbitration and Conciliation Act, 19961 has been filed assailing the arbitral award and order under Section 33 of the Act.
A company i.e. Samtel Colors Limited, the respondent ( borrower ) availed from the petitioner an Inter-Corporate Deposit ( ICD ) facility for a sum of Rs. 1,70,00,00,000/- on 12.02.2007. The same was granted subject to the borrower furnishing a surety/pledge of 11 lakh shares held by the respondent in the borrower company, as a security for repayment of the outstanding amount under the ICD. It is the case of the petitioner that the said surety was given as a security for repayment of all outstanding amounts not only under the ICD but also “any other existing or future agreement”.
It was the case of the respondent ( claimant ) that the borrower repaid the ICD on 19.11.2007 and thereby the borrower stood discharged. Consequently, the respondent ( claimant ) being the surety, automatically stood discharged and the petitioner herein was bound to return the shares pledged by the respondent ( claimant ).
The Court is conscious of the limited scope of interference with arbitral awards in exercising jurisdiction under Section 34 of the Act. The law is well settled that an arbitrator is the final arbiter on factual issues. Further, the interpretation of the terms of the contract between the parties is within the domain of the arbitrator. While examining an arbitral award on the touchstone of Section 34 of the Act, it is impermissible for this Court to embark upon reappraisal of the factual and evidentiary aspects.
Only if the award is so palpably perverse that it can be said that no reasonable person can conclude that the arbitrator has arrived at, would it be permissible to interfere with the impugned arbitral award in the exercise of jurisdiction under Section 34 of the Act.
On appraisal of the impugned award on the touchstone of the settled parameters, the impugned award is liable to be set aside on the ground of being perverse and being vitiated by patent illegality for the reason that there is a direct contradiction between the findings rendered in the impugned arbitral award vis-a-vis claim no.2 and claim no.3.
It has been categorically found that “neither the value of shares at the time of pledge is proved nor at the time of filing this claim petition”. Further, with regard to the charts downloaded from the internet sought to be relied upon by the petitioner before the Ld. arbitrator and also sought to be relied upon in the affidavit dated 16.03.2023 filed in the proceedings, it has been held in the impugned award that “the charts downloaded from the internet is no evidence in the eyes of law, nor can it be relied upon”.
Thus, the value of the pledged shares as asserted by the respondent ( claimant ) vis. Rs. 21/- per share as of 26.04.2007 and Rs.17/- per share ( at the time of filing of a statement of claims ) were not accepted in the impugned award while adjudicating claim no.2. However, in an utter contradiction of the said findings, the impugned award assumes the value of these shares to be to the tune of Rs. 17/- per share, for adjudication of claim no.3. Furthermore, to adjudicate claim no.3, the impugned award does not even mention the date on which it is presuming the value of each share to be Rs.17/- per share.
In the statement of claim as filed by the respondent ( claimant ), claim no.3 was advanced on the basis that the average price per share was Rs. 21/- as of 26.04.2007 and it was on this basis that it was sought to be asserted that the respondent ( claimant ) was deprived of utilizing the amount representing the value of shares ( on the basis that the value of shares stood at Rs. 21 per share as on 26.04.2007 ). Even the respondent ( claimant ) did not assert that the value of the shares for claim no.3 should be taken to Rs. 17 per share.
Thus, the impugned award, while adjudicating claim no.3 proceeds in a manner which is at variance with the case set up by the respondent ( claimant ) itself. This is apart from the aspect of direct contradiction between the findings in respect of claim no.3 vis-a-vis findings qua claim no.2.
In light of the aforementioned inherent inconsistency and internal contradiction within the award, the Court is constrained to set aside the award qua claim. Another important change that has been made because of the provisions of the 1996 Act is that, unlike the 1940 Act, the arbitrator is required to assign reasons in support of the award. A question may invariably arise as to what would be meant by a reasoned award.
Moreover, in the absence of any substantiating evidence, the Majority Tribunal went on to decide the claim and the quantum thereof ex aequo et bono, that is, based on equity and conscience, which is specifically barred under Section 28(2) of the Act when there is no express agreement or authorization on behalf of the parties in favour of the Arbitral Tribunal to act in such manner.
In the circumstances, Justice Sachin Datta set aside the impugned award to the extent of the findings/directions rendered in respect of claim no.3 in the arbitration proceedings.
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