The Madras High Court has held that in proceedings under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996, the Court’s interference with an arbitral award is limited and cannot extend to re-appreciation of evidence merely because a party, despite due notice, chose not to participate in the arbitral proceedings. However, where a distinct and severable component of the award is patently illegal on admitted facts, such component alone can be set aside while sustaining the remainder of the award.
Applying this principle, the Court partly allowed the appeal by setting aside only the award insofar as it related to “Rental Loss” in favour of VLCC Health Care Limited, while confirming the award under the heads “Damages” and “Arrears of Rent”.
The Division Bench comprising Justice P. Velmurugan and Justice K. Govindarajan Thilakavadi observed that the relationship of lessor and lessee under the registered lease agreement dated August 22, 2008 was undisputed, and it was also admitted that the appellant had occupied the premises for about two years and thereafter vacated it after issuing two months’ notice, which was accepted by respondents 1 and 2, who took back possession.
The Bench further observed that arbitral proceedings had been duly initiated in terms of the arbitration clause, and notice of arbitration as well as notice issued by the Commissioner had been duly served on the appellant. Since the appellant had admittedly received the communications and was aware of the proceedings, the objection that notice was served at the Regional Office instead of the Registered Office, in the absence of demonstrated prejudice, did not vitiate the proceedings. The Bench held that, having failed to participate in the arbitral proceedings or adduce evidence, the appellant could not later seek re-appreciation of evidence in proceedings under Section 34 of the Act.
The Bench also observed that interference under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996 is confined to cases of patent illegality, perversity, or contravention of public policy, and does not extend to re-appreciation of evidence or substitution of the Court’s view on facts. On examining the award, the Bench noted that the Sole Arbitrator had allowed claims towards damages, arrears of rent, and rental loss.
Although the Bench held that the components of the award relating to damages and arrears of rent were based on appreciation of evidence and did not suffer from perversity or patent illegality. However, the component relating to rental loss of Rs. 7.20 lakhs was found unsustainable since possession of the premises had already been handed over and accepted by respondents 1 and 2, and there was no finding that possession had been withheld thereafter.
Briefly, the appellant had entered into a registered lease agreement dated August 22, 2008 with respondents 1 and 2 in respect of a 2600 sq. ft. premises at Peelamedu, Coimbatore, for a period of nine years, with stipulated rent escalation and an interest-free security deposit of Rs. 4.50 lakhs. The appellant complied with the lease till June 2010, and thereafter issued a termination notice dated July 01, 2010, seeking to hand over possession on July 09, 2010 and claiming refund of the balance security deposit after adjustment under Clause 14 of the lease agreement.
After resumption of possession, respondents 1 and 2 issued notices claiming arrears of rent and damages, first for Rs. 17.48 lakhs and thereafter revising the claim to Rs. 14.87 lakhs after adjusting the security deposit. The appellant denied the claims by replies dated August 23, 2010 and September 14, 2010. Respondents 1 and 2 thereafter initiated Section 9 proceedings, pursuant to which an Advocate Commissioner was appointed, and arbitration was later invoked; the High Court appointed the third respondent as Sole Arbitrator in relation to disputes arising out of the lease agreement dated August 22, 2008.
The Sole Arbitrator entered reference on August 01, 2014 and eventually passed an ex parte award dated February 21, 2015 in Arbitration Case No.5 of 2014. The appellant challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996 before the Principal District Judge, Coimbatore, but the challenge was dismissed on October 12, 2022, leading to the present appeal under Section 37 of the Act.
Appearances:
Advocates S. Kamalakannan and Jayasudha, for the Appellant
Senior Advocate AL. Gandhimathi and Advocate R. Priyadharsini, for the Respondent
