Arbitral Tribunal Cannot Direct Renewal Of Determinable Contract: Madras High Court

The Madras High Court has set aside an arbitral award and a subsequent order of a single judge, ruling that an arbitral tribunal cannot direct continuation or renewal of a determinable contract, as such relief is barred under Section 14(d) of the Specific Relief Act, 1963.

A Division Bench of Justice P. Velmurugan and Justice K. Govindarajan Thilakavadi held that once a contract is determinable in nature, an arbitral tribunal cannot compel its continuation or renewal.

“Section 14(d) of the Specific Relief Act, 1963 (formerly Section 14(1)(c) prior to the 2018 amendment) clearly provides that contracts which are in their nature determinable cannot be specifically enforced. Once it is held that the contract between the parties is determinable in nature, the arbitral tribunal could not have granted a direction compelling renewal of the licence,” the Court observed.

The Court further held that the award suffered from patent illegality and that the single judge erred in refusing to interfere under Section 34 of the Arbitration and Conciliation Act, 1996.

“We are of the considered view that the arbitral award dated 07.01.2019 suffers from patent illegality and the learned Single Judge was not justified in declining interference under Section 34 of the Arbitration and Conciliation Act, 1996,” the Bench said.

The dispute arose from a licence granted by Southern Railway to Mrs. G. Bharathi, who belongs to a Scheduled Tribe community, under a scheme reserving certain catering stalls for Scheduled Tribe candidates. She was allotted Catering Stall No. SMU-5 at Chennai Central Railway Station for a period of five years from March 2015 to March 2020 and commenced business in March 2015.

During the licence period, the Railway Administration conducted inspections and alleged several irregularities, including misuse of space, sale of food packets without proper stamping, lack of hygiene, and engagement of staff without identity cards and medical certificates. Fines were imposed and warnings issued, following which the licence was terminated on August 22, 2017.

Bharathi invoked the arbitration clause, and the sole arbitrator held that the termination was unjustified, rejected the Railways' counterclaims, and directed continuation of the licence along with renewal for a further period of three years.

Southern Railway challenged the award under Section 34 of the Arbitration and Conciliation Act, but the single judge dismissed the petition, holding that the scope of interference with an arbitral award is limited and that the court cannot re-appreciate evidence.

Before the Division Bench, the Railways argued that the licence agreement was determinable in nature and therefore incapable of specific enforcement and that the arbitrator had exceeded jurisdiction by directing renewal of the licence. It was also contended that the relief granted travelled beyond the terms of the contract.

Bharathi, on the other hand, contended that the award did not suffer from patent illegality and that the Railways could not raise the issue of the determinable nature of the contract at the appellate stage.

Rejecting this objection, the Bench held that a pure question of law going to the root of the matter can be raised at any stage when the relevant facts are already on record.

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