Arbitrator Need Not Frame Issue Absent Relief Claim In Statement of Claim: Bombay High Court

The Bombay High Court on 7 April held that an Arbitral Tribunal is not required to frame a specific issue where a party merely raises a grievance in the Statement of Claim (SoC) without seeking any corresponding relief.

A Single Judge Bench of Justice Sharmila U. Deshmukh upheld an award in a dispute between the Ministry of Railways and Ambuj Hotel and Real Estate Pvt. Ltd., and dismissed cross-petitions under Section 34 of the Arbitration and Conciliation Act, 1996. She observed:

“There was no claim raised by the Claimant challenging the imposition of penalities as being improper and seeking refund of the penalty amount. Mere pleadings in the Statement of Claim raising grievance about the penalty imposed without seeking further relief in that respect did not necessitate framing of an issue in that regard.”

The Ministry of Railways awarded Ambuj Hotel and Real Estate the tender to provide catering services on the Swarn Jayanti Rajdhani Express. Ambuj deposited the security deposit and licence fees for two years on 30 March 2016. The Railways handed over the train to Ambuj on 8 May 2016, and the parties executed a Master Licence Agreement (MLA) on 30 May 2016.

On 29 March 2017, the Railways terminated the MLA after citing 133 customer complaints received during 2015–2017. It forfeited the security deposit and rejected Ambuj's request for a pro-rata refund of the licence fees and deposit. Ambuj then invoked arbitration. Aggrieved by different aspects of the award, both parties filed petitions under Section 34 seeking to set it aside.

Ambuj argued that the Arbitrator committed patent illegality by failing to frame a specific issue on the improper levy of penalties despite pleadings in the SoC. It also supported the grant of interest at 14% p.a. on refund amounts on the principle of parity, relying on the MLA, which prescribed the same rate for delayed payments by Ambuj.

The Railways contended that Ambuj did not seek a refund of penalties in the SoC, and therefore the Arbitrator rightly treated the penalties as unchallenged. It further argued that the grant of 14% p.a. interest and costs lacked basis.

The Court found that Ambuj did not raise any claim seeking a refund of penalties and merely referred to them as part of its narrative. It held that such pleadings did not require the Arbitrator to frame a specific issue.

Justice Deshmukh noted that under the MLA, persistent complaints constituted a material breach that justified termination, and therefore Ambuj ought to have expressly challenged the penalties and sought a refund if it intended to contest them.

The Bench agreed with the Arbitrator's finding that Ambuj referred to penalties only as contextual background to support its challenge to termination and did not advance them as an independent claim. It held that no patent illegality arose from the Arbitrator's approach. The Court also upheld the award of interest at 14% p.a. on refund amounts as justified.

Accordingly, the High Court refused to interfere with the award and dismissed both petitions.