Sole Arbitrator's reliance on unregistered document to determine main dispute held impermissible
Madras High Court Sets Aside Arbitration Award Due to Patent Illegality. Sole Arbitrator Criticized for Relying on Unregistered Documents and Neglecting Evidence Principles
News Report:
The Madras High Court has set aside an arbitration award dated February 25, 2023, citing patent illegality and perverse findings by the sole arbitrator. The judgment, delivered by Justice N. Anand Venkatesh, scrutinized the arbitral process and the evidence evaluation, ultimately concluding that the award failed to meet the legal standards prescribed under the Arbitration and Conciliation Act, 1996.
The dispute originated from a loan agreement dated April 12, 2018, between the petitioners, Shabana and others, and the respondent, N. Manoharan. The respondent claimed that a sum of Rs.13 lakhs was lent to the petitioners, prompting arbitration proceedings when the amount was not repaid. The arbitrator relied heavily on documents marked as Ex.C1 and Ex.C2, which the petitioners contested as forged and unregistered.
The court highlighted several key deficiencies in the arbitration process, notably the arbitrator's reliance on unregistered documents in contravention of Section 49 of the Registration Act, 1908. Justice Venkatesh emphasized that Ex.C2, which purportedly created security over property, was inadmissible for determining the main transaction, as it was not registered.
Moreover, the judgment criticized the sole arbitrator's approach to evidence, particularly the failure to properly assess the respondent's financial capacity to lend the amount in question. The court noted discrepancies in the respondent's income claims and the lack of supporting financial documentation, underscoring the need for a comprehensive appreciation of evidence, even in arbitration proceedings.
Justice Venkatesh also pointed out that the arbitrator's findings were based on selective reading of evidence, disregarding crucial aspects that could have altered the outcome. The judgment referenced established Supreme Court precedents, including the Ssangyong Engineering case, to underline the necessity of adhering to settled legal principles in arbitration.
Consequently, the court ordered the arbitration award to be set aside and imposed a cost of Rs.1,00,000 on the respondent, payable to the petitioners within four weeks. This ruling serves as a reminder of the judiciary's oversight in ensuring fairness and legality in arbitration processes, reinforcing the importance of rigorous evidence evaluation and adherence to statutory requirements.
Bottom Line:
Arbitration award set aside due to patent illegality; Sole Arbitrator's reliance on unregistered document for collateral purposes and failure to appreciate evidence comprehensively deemed perverse.
Statutory provision(s): Arbitration and Conciliation Act, 1996 Section 34(2)(b)(ii), Section 34(2A); Evidence Act, 1872; Registration Act, 1908 Section 49
Shabana v. N. Manoharan, (Madras) : Law Finder Doc Id # 2780044
