The Calcutta High Court has recently held that an appellate court can examine grounds challenging an arbitral award that were raised before the lower court but left undecided, provided they are available on the arbitral record.

A Division Bench of Justices Debangsu Basak and Aryak Dutt set aside the District Judge, Purba Medinipur's March 12, 2019 order quashing an arbitral award in favour of Friends Engineering Co-operative Society Limited and also set aside the award dated February 14, 2014.

"The grounds under Section 34 are on record. A respondent in appeal may support the result on a ground urged below that the lower court did not decide. An Appeal Court under Section 37 can therefore examine the grounds on the arbitral record.", the Court held. 

The dispute arose from a November 25, 2004 Memorandum of Understanding under which Friends Engineering was to construct a market complex comprising around 690 stalls at New Digha at an estimated cost of Rs. 5.26 crore. The Digha Shankarpur Development Authority (DSDA) halted the work in March 2005 citing irregularities and missing environmental clearances, and cancelled the agreement in May 2005.

The arbitrator held the termination illegal and awarded compensation, including damages for loss of expected profits. DSDA challenged the award which the District Judge set aside on March 12, 2019, prompting the society's appeal before the High Court. 

The High Court observed that the District Judge had relied on government communications and other documents that according to the appellant's unrebutted submission, were neither part of the arbitral record nor pleaded in the challenge.

The Court therefore reiterated that an application challenging an award must ordinarily be decided on the material before the arbitrator.

The Bench further held that describing the award as “contrary to law and justice” was insufficient without identifying the specific public policy ground, legal provision or contractual term violated. The District Judge had also failed to examine challenges concerning damages, interest and costs.

"Having so held, the Court below concluded that the award was “contrary to the law and justice” and therefore is opposed to public policy. The judgment does not identify which head of public policy was offended, which provision of law was contravened, or which term of the contract was disregarded. “Contrary to law and justice” is not a ground under Section 34. Nor did the Court below examine the grounds directed at the grant of damages, interest and costs."

On loss of profits, the Court found no evidence establishing stall rates, market demand or the profit margin the society could reasonably have earned. It held that expected profit damages could not be awarded without material demonstrating that the profits would actually have been earned.

Since the award's components were interconnected and could not be separated without recalculating the remaining claims, the High Court set aside the entire award.

However, the interim award of ₹15 lakh already paid with the parties' consent and not challenged, remained unaffected.

For the Appellant: Senior Advocate Debashis Kundu, Indranil Nandi, D.P. Samanta, Sayak Konar, Advocates 

For the Respondent: Surojit Nath Mitra, AG, Senior Advocate N.C. Bihani, Dibashis Basu, AGP, Advocates Soumya Mukherjee, Sneha Dutta, Purnendu Das

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Case Title :  Friends Engineering Co-operative Society Limited Vs. Digha Shankarpur Development AuthorityCase Number :  AO-COM NO. 40 of 2026CITATION :  2026 LLBiz HC (CAL) 260
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