Court Finds Procedural Irregularities and Patent Illegality in Arbitral Tribunal’s Decision
In a significant development, the Calcutta High Court has set aside a majority arbitral award in the case between Kessels Engineering Works Pvt. Ltd. and Neo Metaliks Limited. The judgment, delivered by Justice Sabyasachi Bhattacharyya, found the arbitral award to be fraught with procedural irregularities and patent illegality, particularly in the interpretation of the contract terms and the omission of a dissenting arbitrator's signature.
The dispute arose from a contract dated December 15, 2004, for the manufacturing, supply, and commissioning of a Bleed Cum Condensing Steam Turbine Generator Set by Kessels to Neo Metaliks. The majority award passed by the Arbitral Tribunal was challenged under Section 34 of the Arbitration and Conciliation Act, 1996, primarily on grounds of fraud, corruption, and violation of procedural norms under Section 31(2) of the Act.
The court highlighted that the majority award lacked the necessary signatures and reason for the dissenting arbitrator's absence, rendering the tribunal's decision-making process incomplete. Further scrutiny revealed that the award's interpretation of the contract's guarantee clause was contrary to its express terms, leading to a finding of patent illegality.
Justice Bhattacharyya noted that the tribunal had overlooked material evidence and failed to adhere to the terms of the contract, specifically regarding the guarantee period and the definition of "successful commissioning." The court emphasized that the interpretation was not aligned with a reasonable or fair-minded perspective and was inconsistent with the contract's plain language.
In addition to setting aside the claimant's claims, the court allowed Kessels' counterclaim for the balance consideration amount, directing Neo Metaliks to pay Rs. 38 lakh along with interest from July 27, 2009, till the date of the amended award, and an additional interest from the date of the amended award until payment.
The judgment underscores the importance of adherence to procedural requirements and the correct interpretation of contract terms in arbitral proceedings. It also reaffirms the court's role in ensuring that arbitral awards comply with the statutory framework and principles of justice.
The decision serves as a reminder to arbitrators and parties involved in arbitration to maintain rigorous standards in the conduct of proceedings and the issuance of awards to avoid judicial intervention.
Bottom line:-
Arbitration and Conciliation Act, 1996 - Majority arbitral award set aside due to violation of Section 31(2) and patent illegality arising from interpretation of the contract contrary to its express terms - Counterclaim of the petitioner allowed.
Statutory provision(s): Arbitration and Conciliation Act, 1996 Sections 31(1), 31(2), 34(2-A), 28(3); Sale of Goods Act, 1930 Section 59.
