Author: Parnika Choudhary, 3rd year student at Bharati Vidyapeeth University.
Date of Decision: April 15, 2021
Bench: Vibhu Bakhru, J
Original Copy: N/A
Issues in question:
- Whether it is permissible for a court to overturn an arbitral judgement simply because it disagrees with the arbitral tribunal’s factual findings?
Background of the case:
- In this case, the plaintiff is Megha Enterprises and the respondent is Haldiram Snacks.
- Megha Enterprises is a partnership firm that trades Crude Palm Oil. The Petitioner signed two agreements with M/s. Coral Products Pvt. Ltd. on February 2, 2013, and February 25, 2013, for the sale and purchase of Crude Palm Oil on a High Seas Sale Basis.
- Coral agreed to sell Crude Palm Oil to the Petitioner on the agreed-upon terms and issued two bills for Rs. 6,85,02,000/- and Rs. 12,18,75,000/-, respectively. As a result, the Petitioner owed Coral an aggregate value of Rs. 19,03,77,000/-.
- Noteworthy, Coral merged with M/s. Haldiram Snacks Pvt. Ltd. (Respondent) following Sections 391-394 of the Companies Act, 1956. As a result, Coral’s assets were transferred to the Respondent, which included the amount receivable from Megha enterprises.
- Based on the current Defendant, the Appellant received the Crude Palm Oil at Kakinada’s port of delivery, however the price of Rs. 19,03,77,000/- was not paid.
- The Respondent invoked the Arbitration Clause under the High Sea Sales Agreement in a notification dated May 18, 2016, sent to the Petitioner due to the Petitioner’s incapacity to pay the aforementioned amount.
- The Respondent asked that the Complainant pick a sole arbitrator in the letter, and even provided the names of three retired judges of the Hon’ble Delhi High Court. The Respondent further demanded Rs. 19.03,77,000/- + 18% annual interest.
- On June 3, 2016, the Petitioner returned to the notification, denying both the obligation for the sum claimed and the appointment of an Arbitrator. As a result, the Respondent filed an application with the High Court to appoint an Arbitrator under Section 11(6) of the Arbitration and Conciliation Act of 1996.
- The High Court granted the above-mentioned petition, and the parties were referred to the Delhi International Arbitration Centre in an order dated April 18, 2017, with the directive to select an Arbitrator in line with the 1996 Act and the DIAC Rules.
- The Respondent (Claimant before the Sole Arbitrator) filed their Statement of Claim on June 5th, 2017, stating that the sum of Rs. 19.03,77,000/- that was past due. Future interest of 18 per cent per year computed at Rs. 14,56,38,405/- from the day the payment became due till the date the Statement of Claim was submitted. Pendente Lite and 18% annual interest from filing the claim until the award is paid and claimed litigation costs.
- The Petitioner (Respondent before the Sole Arbitrator) filed a Statement of Defence in which it claimed that the claims were prohibited by limitation. To commence, Plaintiff contended that the Arbitration Clause was activated on May 18, 2016, more than three years after the Agreement’s amounts were due.
- Furthermore, the Petitioners alleged that they provided Crude Palm Oil to M/s. Good Health Agro Tech (P) Ltd. and M/s. Nikhil Refineries (P) Ltd. and the Respondent had attempted to falsify its financial statements and show profits under its brand name. Lastly, the Petitioners contended that the Respondent had taken payments from the aforementioned firms but had failed to reimburse the Petitioner.
- Proceedings before the Arbitrator
- After reviewing the contentions, the Sole Arbitrator determined that it has jurisdictional authority to decide the claims. The arbitration shall be held in either Hyderabad or Delhi, as indicated in the Arbitration Clause.
- In addition, the Sole Arbitrator said categorically that the two disputed agreements were engrossed on the stamp paper bought in Delhi.
- After reviewing the papers and evidence on file, the Sole Arbitrator dismissed the Petitioner’s contentions and rendered an award in favour of the Respondent.
2. Proceedings before the High Court of Delhi
- The High Court dismissed the argument that the Arbitral Tribunal had made a serious mistake by accepting testimony without an affidavit under Section 65B of the Evidence Act.
The High Court gave two grounds for this:
(i) To begin with, this does not apply to processes before the arbitrator, according to Section 1 of the Evidence Act.
(ii) Further, the Petitioner did not make such a claim at the proper level, namely before the Arbitral Tribunal. Because the scope of investigation under Section 34 is so limited, the High Court stated that it cannot conduct a reappraisal of evidence.
- The High Court noted that because the scope of investigation under Section 34 is highly narrow, it cannot undertake the exercise of re-appreciation of evidence based on patent illegality.
- In rejecting the Petitioner’s claims, the High Court made the following categorical observations:-
- The petitioner has presented no argument in this instance that the arbitral verdict is adverse to India’s Fundamental Policy. The arbitral award cannot be construed in any way to be contrary to justice or morals. The current case involves a straightforward transaction of sale and purchase of items.
- All the Arbitral Tribunal did was an order that the petitioners pay for the things they purchased with interest after determining that they had not paid for them. It is well understood that delaying the filing of a claim simply delays the remedy, the applied from being used; it does not remove the obligation.
- In this light, the Arbitral Tribunal, after reviewing the evidence, rejected Megha’s allegation that Haldiram is denied its remedy to obtain what it claimed was rightfully entitled to it. There is little doubt that such an approach would violate any sense of morality represented in Section 34(2)(6) of the A&C Act’s writing “public policy.”
- The High Court then said that the Arbitral Tribunal’s interpretation of the evidence may have been erroneous and that the High Court may adopt a different view; nevertheless, the scope of investigation under Section 34 of the 1996 Act is not limited to that.
- Furthermore, the High Court stated that the court cannot interfere with the award solely because it disagrees with the conclusion formed by the Arbitral Tribunal from the facts presented by the parties.
- Finally, the High Court rejected the Petitioner’s claim and refused to tamper with the award based on an erroneous conclusion based on the facts presented by the parties.
- The High Court upheld the arbitral decision in favour of the Respondent and dismissed the Section 34 application because the Petitioner failed to raise any ground or make any argument that the High Court could accept.
- While dismissing the Section 34 application, the High Court dismissed the Petitioner’s claims and found no reason to interfere with the decision because the Arbitral Tribunal erred in drawing inferences from the material on record.
- The High Court’s ruling goes a great way toward reaffirming many aspects of not only arbitration law, but also linked statutes. First and foremost, the High Court has maintained its pro-arbitration posture by refusing to interfere with the award based on disputes overdrawing inferences from the facts on record.
- Second, although maintaining the Arbitral Tribunal’s opinion on debt acknowledgement in electronic form, the High Court has made a welcome step forward in appreciating technological changes and extending the limits of Section 18 of the Limitation Act to even electronic communications.