New Factual Plea Cannot Be Raised For First Time In Appeal Against Arbitral Award: Calcutta High Court

The Calcutta High Court has held that a new plea which depends on facts cannot be raised for the first time in an appeal under Section 37 of the Arbitration and Conciliation Act, 1996 to impeach an arbitral award.

The Court therefore said that BSNL could not raise for the first time in appeal its plea under Section 106 of the Transfer of Property Act, 1882, challenge the validity of the lease of the premises used for its telephone exchange.

A Division Bench of Justices Debangsu Basak and Aryak Dutt dismissed Bharat Sanchar Nigam Limited's (BSNL) appeal against the March 16, 2020 order of the Additional District Judge at Barasat which had rejected BSNL's challenge to an arbitral award dated May 13, 2016. 

"In the memorandum of appeal, the appellant has questioned the validity of the lease and relied on Section 106 of the Transfer of Property Act, 1882. This plea was not raised before the learned Arbitrator. As far as the impugned judgment shows, it was not raised before the learned Court below. A new plea which depends on facts cannot be raised for the first time in an appeal under Section 37 to impeach an award.", the Court held. 

BSNL had entered into a lease dated September 5, 1997 for premises at Shyamnagar for installation and maintenance of a telephone exchange. On March 21, 2006, the West Bengal Pollution Control Board permitted operation of the exchange only until August 31, 2006, following which BSNL shifted the active exchange to adjoining premises.

BSNL then issued a termination notice dated February 23, 2007, seeking to terminate the lease from August 23, 2007. The High Court appointed a sole arbitrator on April 4, 2013 and the arbitrator passed the award on May 13, 2016. BSNL later challenged the award under Section 34 of the Arbitration Act before the Additional District Judge, which rejected its challenge. 

Before the High Court, BSNL argued that the Pollution Control Board's direction had affected its ability to continue operating the telephone exchange from the leased premises. It also challenged the arbitrator's findings concerning termination, rent and damages. The respondent contended that the Section 37 appeal could not be used to reappreciate the evidence or substitute another view for a plausible interpretation adopted by the arbitrator. 

The High Court held that the scope of interference under Section 37 could not travel beyond the limited grounds available under Section 34. It noted that the arbitral award had already been examined by the court below and that reappreciation of evidence was impermissible.

The Court then examined Clause 7.1 of the lease, which required six months' previous written notice to the lessor. The arbitrator had held that the notice operated when communicated and that the notice issued by BSNL did not provide the full six-month period.

The High Court found this to be a “possible and plausible view” and declined to substitute its own interpretation.

The Bench also rejected BSNL's contention based on the Pollution Control Board's direction. It noted that BSNL had shifted the active telephone exchange to adjoining premises and had not established that the leased property had become substantially and permanently unfit for the purpose for which it was leased. 

"The direction of the Appellate Authority of the West Bengal Pollution Control Board required BSNL to stop operating, and to shift the exchange. BSNL complied by moving the exchange to adjoining premises. That was its case before the learned Arbitrator. The Transfer of Property Act, 1882, deals separately with a lessee's right to avoid the lease where the property is rendered substantially and permanently unfit for the purpose for which it was let out. No such case was made out by the appellant."

On BSNL's claim for damages and its counter claim, the High Court found no basis for interference with the arbitrator's conclusions. It noted that the evidence regarding obstruction and loss was insufficient and that the witness relied upon by BSNL lacked personal knowledge. The award of ₹3 lakh towards costs was also found to be within the arbitrator's discretion. 

The Calcutta High Court accordingly dismissed BSNL's appeal, affirmed the March 16, 2020 order of the Additional District Judge and upheld the arbitral award dated May 13, 2016. 

For Appellants: Advocate Kallol Basu, Suman Banerjee

For Respondents: Advocates Anupa Banerjee, Rohan Shaw