The Punjab and Haryana High Court reiterates the limited scope of intervention u/s 34 and 37 of the Arbitration Act and upholds the arbitral award in the land development dispute

The Punjab and Haryana High Court Bank of Justices Arun Palli and Vikram Aggarwal has reiterated that the scope of interference with an arbitral award under Section 34 of the Arbitration and Conciliation Act 1996 is narrow and the appellate jurisdiction under Section 37 is even more limited. The court reiterated that the jurisdiction under Section 34 and Section 37 of the Act was not comparable to normal appellate jurisdiction. It ruled that interference with an arbitral award is only permissible if it conflicts with public policy or is manifestly unlawful. The court reiterated that an arbitral award should not be set aside simply based on an alternative interpretation of the agreement.

The court upheld an arbitration award in favor of the village landowners who withheld a deposit when purchasing land to be used for a development project in accordance with the terms of the development agreement.

Quick facts:

The defendants are owners of properties in Tigra village, Gurugram district. On September 2, 2005, the complainant and the defendants concluded a development agreement for the use of the property for the development of a commercial complex/IT complex. An interest-free refundable bond was paid to the defendants.

The project should be completed within 6 years from the execution date. If the complainant defaulted on payment, the entire security amount was to be withheld. It was agreed that the agreement would be automatically terminated and any documents signed by the parties would be void. The agreement also contained one Force majeure Clause. The parties agreed that if the Government of Haryana, the Land Acquisition Collector or any other authority were to acquire the land during the term of the agreement, the security amount would be forfeited, the agreement would be terminated and the appellant would not be entitled to any expenses, if any, Amounts or liens on the property.

On 12.12.2008 a portion of the entire land was declared under Section 4 of the Land Acquisition Act, 1894. A declaration was made under Section 6 on 12/11/2009. The award ceremony took place on November 23, 2011. Accordingly, a portion of the entire property was acquired while a license was granted for a portion. The defendants sent a legal notice to the complainant stating that the agreement was terminated and that the complainant had no interest in the property.

The complainant invoked the arbitration clause. Costs of Rs 4 lakh were imposed on the appellant which was ordered to be paid to the respondents. Thereafter, the appellant filed a petition under Section 34 of the Arbitration and Conciliation Act, 1996. The petition was dismissed by the Special Commercial Court vide Gurugram order dated 16.10.2019. The complainant challenged the impugned decision.

Objections of the parties:

Advice for Complainant argued that the arbitrator could not overturn the entire development plan. Furthermore, it was never agreed that time was the essence of the agreement and the respondents enjoyed the benefits of the development agreement until, at a very late stage when the land was to be released from the acquisition, they became dishonest and unilaterally withdrew from the Agreement withdrawn development agreement. It was submitted that the Section 34 petition was dismissed without appreciating the controversy from the proper perspective.

On the contraryLawyer for them Respondents submitted that a petition under Section 34 does not constitute an appeal and an arbitral award can only be challenged on the limited grounds available under Section 34. In addition, the arbitrator had dealt with all aspects in detail and therefore no intervention was necessary.

Observations:

The court observed that after deciding the petition under Section 34, an appeal under Section 37 can be preferred. The court reiterated that the jurisdiction of the court is relatively narrow under Section 34 of the 1996 Act and the jurisdiction of the Court of Appeal is even narrower under Section Article 37 and therefore the scope for intervention is limited. The court relied on the case of National Highways Authority of India vs. M/s Hindustan Construction Company Limited (2024 AIR (SC) 2383). This was also referred to Associate Builders v DDA and MMTC Ltd. v. Vedanta Ltd. And MMTC Ltd. v. Vedanta Ltd.which held that interference with an arbitral award is permissible only if it is contrary to the public policy of India or is manifestly unlawful.

The court pointed this out Konkan Railway Corporation Limited vs. Chenab Bridge Project Undertakingwhich said:

“The jurisdiction under Section 34 and Section 37 of the Act is not that of normal appellate jurisdiction.” It is generally accepted that courts should not interfere with the award in a careless and cavalier manner. The mere possibility of an alternative view of the facts or interpretation of the contract does not entitle the courts to overturn the findings of the arbitral tribunal.”

The court noted that the arbitrator had thoroughly examined the matter and made detailed findings. It was found that the Force majeure The clause could not be invoked because only part of the property was acquired. The court agreed with the arbitral tribunal’s finding that the applicant had failed to fulfill his obligations.

The court held that the Special Commercial Court had rightly held that the Section 34 petition was in the nature of an appeal against the arbitral award. It reiterated that the evidence presented to the arbitrator could not be re-evaluated. It concluded that the arbitrator’s decision was not against the public policy of India and was not against the law. The court therefore dismissed the appeal.

Case title: Active Promoters Private Limited v. Desh Raj and others

Case number: FAO-CARB-3-2020 (O&M)

Date of judgment: November 18, 2024

Complainant’s lawyer: Mr. Vipul Sharma, Advocate.

Attorney for the defendant: Mr. Aashish Chopra, Senior Advocate with Ms. Rupa Pathania, Advocate; Ms. Gurpreet Randhawa, Advocate and Ms. Nitika Sharma, Advocate.

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