The Allahabad High Court (Lucknow Bench) has clarified that mere allegations of fraud, cartelisation, non-joinder of parties, or procedural irregularities cannot be grounds to overturn an arbitral award when the findings are evidence-based and suffer from no patent illegality. The Court reiterated that allegations of cartelisation, bid rigging, and fraudulent conduct must be supported by cogent evidence, and mere assertions cannot justify setting aside an arbitral award.
Emphasising that death of a partner does not invalidate proceedings initiated by a firm, the Court asserted that since the arbitration was pursued by the partnership firm itself, the subsequent death of a partner who had signed the claim petition did not render the proceedings void. Where the contract was awarded, managed, and terminated by the contracting corporation, the absence of the State Government or other departments from arbitral proceedings does not affect the validity of the award.
The arbitral finding that the contract was terminated in breach of contractual requirements and without affording an opportunity to the contractor was upheld by the Court.
Briefly, the dispute arose from a 2018 tender floated by U.P. Electronics Corporation Ltd. for supply and installation of sophisticated DNA laboratory equipment for a forensic science laboratory at Varanasi. P.S. Global emerged as the successful bidder, received the work order, supplied and installed all 31 items, and the equipment was certified to be functioning satisfactorily by the concerned authorities.
Despite this, on 22 June 2018, the corporation terminated the work order and invoked the performance bank guarantee on allegations of irregularities in the tender process. The contractor invoked arbitration. The Sole Arbitrator allowed the contractor’s claims of about Rs. 8.99 crore with interest, and the Commercial Court subsequently refused to set aside the award. The corporation then filed an appeal under Section 37 of the Arbitration and Conciliation Act, 1996.
The Division Bench comprising the Chief Justice Arun Bhansali and Justice Jaspreet Singh reiterated that the scope of interference under Sections 34 and 37 of the Arbitration and Conciliation Act is extremely limited. Courts cannot re-appreciate evidence or substitute their own view merely because another interpretation is possible. Interference is permissible only when an award suffers from patent illegality, violates fundamental public policy, or breaches principles of natural justice.
On the objection that the arbitral claim was filed by a deceased partner of the claimant firm, the Court observed that the proceedings had been initiated by a partnership firm, not by an individual partner. The statement of claim had been signed when the partner was alive, and his subsequent death did not render the proceedings non est. Drawing support from the principles governing partnership firms, the Court held that such a procedural irregularity did not affect jurisdiction, merits, or cause any prejudice to the appellant.
Regarding the plea that the State of Uttar Pradesh or the Police Technical Services Department was a necessary party, the Court found that the tender was floated, evaluated, negotiated, awarded, and ultimately terminated by U.P. Electronics Corporation Ltd. itself. The contractual relationship existed between the corporation and the contractor. Therefore, the State was not a necessary party to the arbitration proceedings.
On allegations that the contractor had formed a cartel and manipulated the bidding process, the Court noted that no convincing evidence had been produced before the Arbitrator. The record showed that the equipment had been supplied, installed, demonstrated, and accepted as functioning properly. The appellant failed to prove any fraudulent conduct, bid rigging, or corrupt practice. Mere allegations of fraud, without supporting evidence, could not justify setting aside an arbitral award.
The Court also found significance in the fact that the contract was terminated without giving the contractor an opportunity to respond, despite contractual provisions requiring prior notice. The Arbitrator’s conclusion that the termination was invalid was based on evidence and contractual terms, and therefore immune from appellate re-evaluation. On the objection under Section 69(3) of the Partnership Act, the Court held that the respondent firm had already been registered when arbitration proceedings commenced. In any case, the statutory bar under Section 69(3) does not apply to arbitral proceedings.
