When Can Arbitral Awards Be Set Aside? Rajasthan High Court Lays Down Principles To Check Perversity

While underscoring that the Arbitration and Conciliation Act, 1996 was enacted to ensure effective and expeditious resolution of disputes, the Rajasthan High Court expressed concern over the increasing trend of arbitral awards being challenged “as if an appeal has been filed.”

A division bench of Acting Chief Justice Sanjeev Prakash Sharma and Justice Shubha Mehta dismissed an appeal filed by the State of Rajasthan against an order of the Commercial Court which had rejected its objections under Section 34 of the Act and affirmed the arbitral award.

The dispute traces back to the State calling off a contract midway, with the contractor insisting that delays were not entirely its doing and that requests for more time were not given due consideration.

The arbitral tribunal found the termination to be contrary to the terms of the contract. It noted that the question of extending time had not been properly dealt with and that the decision appeared to have been shaped by external inputs rather than an independent assessment.

It further held that the contract had “virtually become non-existent” and awarded amounts to the contractor under various claims, while rejecting the claims raised by the State.

Before examining the merits, the High Court noted that more than 25 years had elapsed since the arbitration proceedings commenced, reiterating that the Act of 1996 was enacted for deciding disputes in an effective and quick manner.

“The Act of 1996 essentially was passed with the purpose of deciding disputes in an effective and quick manner. However, we see and note that in almost all the cases where arbitration awards are passed, the same are taken up by way of raising objections under Section 34 of the Act of 1996, as if an appeal has been filed..”

The bench emphasised that Section 34 provides specific conditions under which an arbitral award may be set aside, and that the scope of interference is limited.

Referring to Supreme Court precedents, the Court observed that interference with an award may be warranted where it is arbitrary or perverse, as understood within the framework of Section 34.

The Court then laid down non-exhaustive principles to aid in determining whether an arbitral award may be set aside on the grounds of arbitrariness or perversity:

a. the finding lacks any or sufficient evidence

b. the conclusion drawn from the material on record is perverse to the extent that no reasonable person would have arrived at such conclusion

c. key facts or evidence were not given due consideration

d. violation of due legal process or principles of natural justice, particularly where it has a material effect on the outcome of the dispute

e. disregarding the opinion of experts without assigning sufficient reasons, particularly in technical matters

f. the decision amounts to rewriting of the contract

g. the tribunal exceeded its mandate in any manner

h. arbitrariness or perversity goes to the root of the matter

The court clarified that these principles provide guidance and must be applied in the context of the facts and circumstances of each case.

Applying the above, the court found that the grounds raised by the State did not fall within the scope of Section 34(2) of the Act and were without basis.

It further noted that the arbitral tribunal had dealt with the objections and arguments with reference to the contractual provisions.

Holding that the award was not perverse and did not conflict with public policy, the Court found no ground for interference.

Accordingly, the appeal was dismissed.

For Appellant: AAG Vigyan Shah,

For Respondent: Senior Advocate A.K. Sharma assisted by Rachit Sharma, Madhav Dadich