'Purported Award' Can Be Challenged Under Section 34 Of Arbitration Act: Calcutta High Court

The Calcutta High Court on Friday held that the scope of challenge under Section 34 of the Arbitration and Conciliation Act, 1996 extends beyond existing awards to include a “purported award” where the very existence of the award is in dispute.

A Single Bench of Justice Sabyasachi Bhattacharyya set aside two alleged arbitral awards relied upon by Roadwings International Private Limited in its dispute with SREI Equipment Finance Limited, holding that only photocopies of the awards were produced and no signed copies or arbitral records were placed before the court, leading to the conclusion that no legally enforceable awards existed.

Explaining why Section 34 must be interpreted broadly, the Court held that the expression “arbitral award” cannot be read narrowly so as to deny a remedy where the very existence of the award is disputed. The Court observed:

“Hence, for the purpose of furtherance of the objective of the 1996 Act and to avoid rendering its provisions nugatory by relegating the parties to the rigmarole of a regular civil suit, the power to entertain a challenge even on the ground of non-existence of a purported award has to be read into the fabric of Section 34 itself. In order to achieve such objective, the expression “an arbitral award” in Section 34 has to be read up to include “or a purported award” as well. If so construed, a challenge to a so-called award on the ground of non-existence of such award will come under the umbrella of Section 34 itself, subject, of course, to the grounds stipulated in Section 34 being otherwise attracted.”

The court also noted that the materials placed before it did not show that any valid arbitral proceedings had actually taken place and that the alleged awards were unsupported by any arbitral record. In this context, the Court observed:

“The utter absence of any relevant document whatsoever to directly prove the carriage of arbitral proceedings and/or of any award which is valid and enforceable in the eye of law shocks the judicial conscience of the Court and is in conflict with the basic notions of morality and justice."

It added, "It would be a gross perpetration and perpetuation of injustice, quite antithetical to notions of due process of law, if the non-existent purported awards which are assailed herein are upheld to be valid and enforceable awards in the eye of law. Thus, the impugned purported awards are in conflict with the public policy of India, being not only induced and affected by fraud and corruption but also in conflict with the basic notions of morality and justice."

The bench further reasoned that a literal interpretation of Section 34, which refers to a challenge against “an arbitral award”, would leave a party remediless in cases where the very existence of the award is disputed, since such a party would otherwise have to institute a separate civil suit.

The Court said Section 34 must be interpreted in a way that does not leave a party without a remedy, noting that the law follows the principle of ubi jus ibi remedium. On the facts, it found that the materials placed on record did not establish that any valid arbitral proceedings had taken place or that enforceable awards existed.

The dispute stemmed from two equipment finance agreements executed in 2017 between SREI Equipment Finance Limited and Roadwings International Private Limited for financing heavy machinery, including reach stacker machines. According to SREI's accounts, dues of Rs 1,51,43,238.35, Rs 92,23,301, and later Rs 3,01,55,013.98 remained outstanding under the contracts.

The alleged awards surfaced during insolvency proceedings against SREI under Section 7 of the Insolvency and Bankruptcy Code before the NCLT, Kolkata, when Roadwings filed an affidavit on January 25, 2024 attaching photocopies of two arbitral awards dated September 17 and September 21, 2020, which were said to have rejected SREI's claims.

After a resolution plan was approved and new management took charge, SREI moved the High Court under Section 34 of the Arbitration Act, stating that no signed awards or arbitral records could be found in the company's files.

Roadwings objected that the challenge was time-barred, arguing that the awards had been communicated in December 2020. The Court was not persuaded. It noted that letters and reconciliation statements exchanged between the parties in 2021 and 2022 made no reference to any arbitral award. It also reiterated that limitation under Section 34 starts only when a signed copy of the award is delivered, which Roadwings failed to show.

The court also clarified the scope of scrutiny under Section 34. While some grounds must be proved by the party challenging the award, the Court said it can itself examine the arbitral record when considering grounds under Sections 34(2)(b) and 34(2-A).

In the present case, the absence of signed awards and any record of arbitral proceedings led the Court to hold that the purported awards were contrary to the public policy of India and could not be sustained.

The Court also held that the mere issuance of a notice under Section 21 of the Arbitration Act does not by itself prove that arbitration proceedings actually took place. Explaining this, the Court observed:

“In the absence of any document whatsoever directly pertaining to subsequent arbitral proceedings, to establish the initiation of such proceedings and/or the same having culminated in valid awards, the notice under Section 21 of the 1996 Act in the instant case has to be treated to be a still-born baby.”

Holding that the existence of valid arbitral awards had not been proved and that reliance on the alleged awards would conflict with the fundamental notions of justice and public policy, the High Court set aside the purported awards

For SREI Equipment Finance Limited: Advocates Jayanta Kumar Mitra, Tilak Kumar Bose, Sankarsan Sarkar, Aditya Kanodia, Sharfaa Ahmed.

For Roadwings International Private Limited: Advocates Ranjan Bachawat, Soumabho Ghosh, Orijit Chatterjee, Shubham Raj, Safura Ahmed.