Karnataka High Court Partly Sets Aside ₹79.58 Arbitral Award In Automotive Axles Housing Society Dispute

The Karnataka High Court on 1 June, partly set aside an arbitral award of Rs.79.58 lakh in favour of contractor K.S. Sridhar, holding that several claims allowed by the arbitrator lacked evidentiary support and were patently illegal.

A Division Bench comprising Chief Justice Vibhu Bakhru and Justice C.M. Poonacha partly allowed the appeal filed by Automotive Axles Employees Housing Co-operative Society Ltd., modifying the arbitral award while sustaining certain monetary components in favour of the contractor. The judges observed:

“In view of the aforementioned, the award of the Tribunal on claim Nos.2, 3 and 6 are patently illegal and are accordingly set aside. The award of the Tribunal on claim Nos.1, 4 and 5 are not interfered with. The above appeal is partly allowed in the aforementioned terms.”

The dispute arose from development works executed by Sridhar in a residential layout developed by the Automotive Axles Employees Housing Co-operative Society in Mysuru. He claimed that after being assigned unfinished and additional development works, substantial amounts remained unpaid, and he invoked arbitration seeking Rs.79.58 lakh along with interest. The Society, however, contended that it had already made excess payments and that certain works remained incomplete.

On 23 May 2022, the sole arbitrator directed the Society to pay Rs.79.58 lakh along with costs and interest at 10% on Rs.33.74 lakh. The Commercial Court later dismissed the Society's challenge under Section 34 of the Arbitration and Conciliation Act.

The High Court noted that although the Society entered appearance before the arbitral tribunal, it failed to participate thereafter despite repeated opportunities. It noted:

“It is clear from the aforementioned that despite the appellant having appeared before the arbitral tribunal, it had failed to contest the proceedings despite adequate opportunity having been given.”

On merits, the Bench upheld the award of Rs.33.74 lakh towards unpaid bills, refund of the Rs.10 lakh security deposit, and interest thereon, relying on contemporaneous emails that indicated acknowledgment of dues by the Society.

However, the Court set aside the award of Rs.5 lakh towards watch and ward expenses, holding that the arbitrator granted the claim without any supporting material and merely on the basis that the Society had not specifically pleaded possession of the layout. The Court found this reasoning unsustainable and patently illegal. It observed:

“The Tribunal merely observing that the appellant, in the reply notice, had not stated that it had took possession of the layout, awarded the said claim in favour of the respondent/claimant. The said finding on Issue No.3 is without any basis or material on record and patently illegal. In view of the same, the said claim awarded in favour of the respondent is liable to be interfered with.”

The Bench further held that certain components of the award, including Rs.32,000 towards stones and boulders and Rs.3.19 lakh towards interest on fixed deposit, were unsupported by evidence and therefore could not be sustained.

Accordingly, the High Court partly allowed the appeal, setting aside the impugned portions of the award while sustaining the remaining claims.