Madras High Court: Arbitration Court Cannot Indulge In Fact-Finding Exercise While Deciding Application For Setting Aside Arbitral Award

Madras High Court: Arbitration Court Cannot Indulge In Fact-Finding Exercise While Deciding Application For Setting Aside Arbitral Award

A Division Bench of Madras High Court (HC) comprising of Chief Justice Sanjib Banerjee and Justice Senthilkumar Ramamoorthy, in the case titled Hindustan Petroleum Corporation Ltd. (Appellants) v. Banu Constructions & Anr. (Respondents) came down heavily on the Arbitration Court for upholding an unreasoned arbitral award and exceeding its jurisdiction in supplementing that award with reasons.

The HC bench clarified that in a regular appeal it is open to the Court to embark on a fact-finding exercise, to re-read and re-appraise the evidence, to interpret the documents afresh, and to do all things de novo that the Court of original jurisdiction could have done.

It added that such expansive authority is not available to Arbitration Court while dealing with a petition for setting aside an award.

The factual background of the case was that the appellants were aggrieved by the Arbitration Court's order which upheld an Arbitral award, apparently silent on the reasons for passing an award and quantifying damages, on various heads.

The appellant contended that the principles of arbitration law do not permit an unreasoned order to be justified by supplementing reasons therefore, upon looking into the evidence or records pertaining to the arbitral reference.

The HC found merits on the contentions of the appellant and it remarked that "This is a classic example of what cannot be done by the Arbitration Court when in receipt of a petition for setting aside the arbitral award."

The HC observed that the Arbitration Court had expended some 30 pages in constructing an order that seeks to give reasons and legal crutches to a 'completely unreasoned' award, which indicated merely 6 or 7 lines as an 'excuse for reasons'.

It added, "The exercise undertaken to rewrite the arbitration award by ascribing reasons in support of the claims allowed and quantum awarded is not the business of the Arbitration Court and such an exercise could not have been undertaken in this jurisdiction or within the limited arena of operation permitted by Section 34 of the Act."

The Division Bench added that the award in itself did not record anything to suggest how the quantum of the claim was arrived at. The HC set aside the impugned Award and the order passed by the Arbitration Court.

It added, "The Arbitration Court has to yield to the arbitrator's assessment as to the quality and the quantity of the evidence, the arbitrator's interpretation of the agreement between the parties unless such interpretation is patently unreasonable or absurd to the meanest mind or is opposed to public policy. Even errors of law committed by arbitrators are not amenable to correction unless such errors lead to a manifest miscarriage of justice."

The HC concluded, "The judgment and order impugned go against the most rudimentary tenets of the governing law and the jurisprudential philosophy established in this branch over the years."

The bench has appointed a retired District Judge as the Arbitrator to take up the reference based on the statement of claim and statement of defense and counter-claim as already filed in course of the previous reference.

The HC granted liberty to the parties to lead evidence and stated that the Arbitrator will be entirely free to decide on the future course of action in the reference.