Mann Housing Development And Ors vs Paarijat Co-Operative Housing Society Ltd

Sr. No.,Particulars,Amount Rs.

1,Fees of Advocate,"4,50,000/-

2,Fees of Arbitrator,"3,50,000/-

3,Steno Charges,"4,500/-

4,Conference room charges,"4,500/-

,Total,"8,11,500/-

or,,

(b) the Court finds thatâ€",,

(i) the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or",,

(ii) the arbitral award is in conflict with the public policy of India.,,

[Explanation 1.â€"For the avoidance of any doubt, it is clarified that an award is in conflict with the public policy of India, only if,â€"",,

(i) the making of the award was induced or affected by fraud or corruption or was in violation of Section 75 or Section 81; or,,

(ii) it is in contravention with the fundamental policy of Indian law; or,,

(iii) it is in conflict with the most basic notions of morality or justice.,,

Explanation 2.â€"For the avoidance of doubt, the test as to whether there is a contravention with the fundamental policy of Indian law shall not entail a",,

review on the merits of the dispute.],,

[(2A) An arbitral award arising out of arbitrations other than international commercial arbitrations, may also be set aside by the Court, if the Court",,

finds that the award is vitiated by patent illegality appearing on the face of the award:,,

Provided that an award shall not be set aside merely on the ground of an erroneous application of the law or by reappreciation of evidence.],,

(3) An application for setting aside may not be made after three months have elapsed from the date on which the party making that application had,,

received the arbitral award or, if a request had been made under Section 33, from the date on which that request had been disposed of by the arbitral",,

tribunal:,,

Provided that if the Court is satisfied that the applicant was prevented by suffcient cause from making the application within the said period of three,,

months it may entertain the application within a further period of thirty days, but not thereafter.",,

(4) On receipt of an application under sub-Section (1), the Court may, where it is appropriate and it is so requested by a party, adjourn the proceedings",,

for a period of time determined by it in order to give the arbitral tribunal an opportunity to resume the arbitral proceedings or to take such other action,,

as in the opinion of arbitral tribunal will eliminate the grounds for setting aside the arbitral award.,,

[(5) An application under this Section shall be fled by a party only after issuing a prior notice to the other party and such application shall be,,

accompanied by an affidavit by the applicant endorsing compliance with the said requirement.,,

(6) An application under this Section shall be disposed of expeditiously, and in any event, within a period of one year from the date on which the notice",,

referred to in sub-Section (5) is served upon the other party.],,

As fan be seen, there are several distinct areas identified for challenge in the statute itself. These include both the ‘public policy of India’",,

clarified to mean ‘the fundamental policy of Indian law’ and the newly introduced concept of ‘patent illegality’. Neither concept is new.,,

Recently, on 13th February 2020 while deciding Union of India v Recon, Arbitration Petition (L) No. 1293 of 2019. I considered at some length the",,

position in law under amended Section 34, referencing the relevant decisions of the Supreme Court; particularly: Associate Builders v Delhi",,

Development Authority, (2015) 3 SCC 49. a decision of 25th November 2014, just under a year before the 2015 amendments; the 8th May 2019",,

decision in Ssangyong Engineering & Construction Co Ltd v NHAI (2019) 15 SCC 13. 1which explains how the 2015 amendment changed the,,

statutory terrain; and the references in each to ONGC Ltd v Western Geco International Ltd (2004) 9 SCC 26.3 and Renusagar Power Co Ltd v,,

General Electric Co. 1994 Supp (1) SCC 644. I considered the implications of ‘public policy’ and the repositioning of ‘perversity’ from,,

the public policy head to the newly-introduced ‘patent illegality’ head. I drew the following conclusions from Ssangyong Engineering:,,

This led to the 23rd October 2015 amendments to the Arbitration Aft. The Ssangyong Engineering Court then put it like this:,,

(a) “Public policy of Indiaâ€, whether in Section 34 or Section 48 means the ‘fundamental policy of Indian law’ as explained in paragraphs",,

18 and 27 of Associate Builders. This is a return to the Renusagar position: violation of (i) the fundamental policy of Indian law; (ii) the interest of,,

India; and (iii) justice or morality.,,

(b) The Western Geco expansion, i.e. the requirements of a judicial approach (as interpreted in Western Geco) and placing ‘unreasonableness’",,

in the ‘public policy’ head, is now a thing of the past. To do so would be to enter impermissibly into a merit-based review of an arbitral award.",,

(f) Violations of principles of natural justice continue to be a ground for interference.,,

(d) “The interest of Indiaâ€​ does not survive as a ground for challenge.,,

(e) The ‘justice or morality’ standard is now to be viewed as a test of whether the award violates ‘the most basic notions of morality or,,

justice’, in afford with paragraphs 36 to 39 of Associate Builders â€" the award must shock the judicial conscience to admit of interference on this",,

ground.,,

(f ) Domestic awards must now survive an additional test: that set out in Section 34(2A), the ‘patent illegality’ standard. This must be a facially",,

patent illegality. It cannot be an erroneous application of the law. A backdoor entry is not permitted: a ground not within ‘the fundamental policy of,,

Indian law’ â€" the contravention of a statute unlinked to public policy or public interest â€" cannot slither in under the ground of ‘patent,,

illegality’.,,

(g) … …,,

(h) Patent illegality does not extend to a re-appreciation of evidence. Only an appellate court can do that. A Section 34 court cannot. It is not an,,

appellate court.,,

(i) A mere contravention of substantive Indian law is no longer a ground to set aside an arbitral award.,,

(j) But an award with no reasons is a violation of Section 31(3) of the Arbitration Aft and constitutes a patent illegality. Paragraph 42.2 of Associate,,

Builders stands.,,

(k) The interpretation and construction of a contract is primarily for the arbitrator to decide. If the tribunal does so in a way no fair-minded or,,

reasonable person would â€" that is, the arbitrator’s view is not even minimally a possible one â€" or if he wanders outside the contract and deals",,

with mattes not assigned to him (for instance, in a dispute about a leave and license agreement considering whether a particular communication is",,

defamatory and awarding damages or an injunction), then the award is vulnerable as a jurisdictional error within Section 34(2A).",,

(l) ‘Perversity’, as understood in paragraphs 31 and 32 of Associate Builders, is no longer under the ‘public policy of India’ head. Yet it",,

continues to exist. It is now re-positioned to fall under the ‘patent illegality appearing on the face of the award’ head. This would include: a,,

finding based on no evidence at all; an award which ignores vital evidence in arriving at its decision; or, say, a finding based on documents taken",,

behind the back of the parties.,,

(m) The patent illegality standard is unavailable for international commercial arbitrations.,,

(n) Section 34(2)(a) does not permit a challenge to an arbitral award on merits.,,

I then examined the ‘public policy’/‘fundamental policy of Indian law’ and the ‘patent illegality’ principles as elucidated in,,

Ssangyong Engineering read with Associate Builders to conclude:,,

17.4 This yields the following result:,,

(i) A lack of a ‘judicial approach’, being the Western Geco expansion, is not available per se as a ground of challenge.",,

(ii) A violation of the principles of natural justice is a ground for challenge as one under Section 18 read with Section 34(2)(a)(iii) â€" that is to say, not",,

under the ‘fundamental policy’ head nor the ‘patent illegality’ head, but distinctly under this sub-Section.",,

(iii) A lack of reasons is a patent illegality under Section 34(2-A).,,

(iv) In interpreting the contract, the arbitral view must be fair-minded and reasonable. If the view is one that is not even possible, or if the arbitrator",,

wanders beyond the contract, that would amount to a ‘patent illegality’.",,

(v) ‘Perversity’ as understood in Associate Builders, is now dishoused from ‘fundamental policy’ (where Western Geco put it), and now",,

has a home under ‘patent illegality’. This includes:,,

(A) a finding based on no evidence at all;,,

(B) an award that ignores vital evidence; and,,

(C) a finding based on documents taken behind the back of the parties.,,

I believe this is not an exhaustive listing.,,

Combining (iv) and (v) above, therefore, while the explicit recognition or adoption of the Wednesbury unreasonableness standard (introduced in",,

Western Geco) is probably done away with, there is even yet a requirement of reasonableness and plausibility in matters of contractual interpretation.",,

If the interpretation of the contract is utterly unreasonable and totally implausible â€" the view taken is not even possible â€" a challenge lies.,,

Therefore: an award that was impossible either in its making (by ignoring vital evidence, or being based on no evidence, etc) or in its result (returning a",,

finding that is not even possible), then a challenge on the ground of ‘perversity’ lies under Section 34(2-A) as a dimension of ‘patent",,

illegality’.,,

It is in Ssangyong Engineering that we see an explicit acceptance of an underlying principle, one that has long informed thinking globally in the",,

context of international arbitrations: the impermissibility of a merit-based review of an arbitral decision. To put it in a nutshell: the previous,,

expansiveness of judicial interference in challenges to arbitral awards has been eliminated. Merit-based interference is proscribed. This means, of",,

course, that it is not permissible to set aside an award merely because on the merits another view was possible, or even preferable; or, as we saw, a",,

correctly invoked and stated law was erroneously applied. There fan be no re-appreciation of evidence. A reasonable and fair interpretation of the,,

contract will invite no interference. It therefore now must behove a Section 34 court to say, “Perhaps this award before me is not done as I might",,

have done it. I might have preferred another, or even opposing, view. But neither is in itself a permissible reason to interfere.†This is so because the",,

window of recourse, previously being widened, has now shrunk. And that is not only as it should be, but as the statute would now have it. The entire",,

ethos of arbitration as an alternative dispute resolution mechanism, one essentially private and contract-based, is founded in this quaternion: contractual",,

fidelity; speedy disposal; finality; enforcement.,,

These are the principles I believe must apply to the case at hand as well.,,

The challenge is limited. Only three grounds are urged. The first is that the learned sole Arbitrator impermissibly or incorrectly interpreted Clause,,

12 of the Development Agreement. Shortly stated the argument is this. There is a provision for enhancement of the monthly compensation payable to,,

Society members as transit rent. The rate is contractually stipulated at 15%. But is this rate a one-time 15% increase? Or is it an increase of 15% per,,

annum? That is the only question.,,

The learned sole Arbitrator took the view that it will be thoroughly unreasonable to look at this as a one-of 15% increase because that would,,

conceivably result in great injustice to the Society members. In paragraph 5(f ) at pages 62 to 64, the learned sole Arbitrator said:",,

“5(f ) The present case is not one of a permitted extension of time to complete the project, as contemplated under clause 12(f) but breach of",,

contract with failure to vacate despite termination. The Respondents have held on to the premises against the wishes of the Claimant at the cost of the,,

members of the Claimant. In such a situation, the members of the Claimants cannot be left high and dry with no recourse. Clause 12(c) contemplates",,

enhancing the amount of monthly compensation payable for alternate accommodation by 15%. The Respondents’ submission that this increase of,,

15% should be a one time increase must be rejected. It would be absurd in a situation such as the present, if despite delay of over 5 years the",,

compensation can be increased only once, after the period of two years. The clause is intended to insulate the members against the liability to pay",,

higher rents/compensation upon renewal of the terms of their temporary alternate accommodation. It is well known that such rents/compensation,,

increase by about 10-12% at the time of renewals. The parties to the said DA have estimated such increases at 15% in my view the Respondents are,,

bound to pay the arrears of compensation with yearly increases of 15% for each succeeding year. The said interpretation is in harmony with the,,

intention of protecting the members in case of delays on part of the Respondents is in keeping with reality. Thus, the increase in the compensation",,

towards temporary alternate accommodation would be at the rate of 15% on yearly basis. The members of the Claimant are also entitled to the,,

interest at the rate of 9% n respect of the outstanding rent. The Respondents shall in the circumstances continue to pay the compensation towards,,

alternate accommodation till vacant possession of the said property is handed over to the Claimant Society.â€​,,

(Emphasis added),,

It is difficult to see how this interpretation fan be said to be contrary to the contract so as to fit within the conceptualisation of a ‘patent,,

illegality’. It is certainly a reasonable interpretation and the approach taken by the learned sole Arbitrator is not only impeccably sound but I would,,

venture to suggest is the view that any Court of equity would take. Indeed, I would go to the extent of saying that it is not merely a plausible view. It is",,

the only possible equitable view that could ever have been taken. The alternative is actually inconceivable. It means that the Developers could,,

indefinitely delay handing over the possession or completing the project sanguine in the knowledge that all they had to incur was a one-time (and never,,

after) increase in the original transit rent. This is an argument born in inequity and weaned on injustice.,,

The other reason for assailing the award is just as bad. Affording to the Developers any claim for compensation of transit rent would end on the,,

Society terminating the Development Agreement is in paragraph 5(d). Now this has to be seen in an admitted factual context, which is that the Society",,

and its members have handed over possession to the Developers. This is common in redevelopment agreements in this city. The members of the,,

Society are in transit accommodation taken on leave and license in diferent parts of the city. Technically, possession of the project site is still with the",,

Developers and the Society members are still in transit accommodation. The argument assailing the award really amounts to this: that the Society has,,

terminated the Development Agreement inter alia because the Developers failed to honour their contractual obligations including inter alia paying,,

transit rent; but now that the Society has chosen to terminate the Development Agreement, the Society and its members fan no longer claim any",,

further transit rent. The argument is illogical and self-defeating. It was quite rightly rejected by the learned sole Arbitrator. A party cannot continue in,,

default resulting in a termination, and then say that that default should be allow to continue for all time to come. Obviously, that obligation to pay transit",,

rent will continue until possession of the site is restored to the Society and its members. There is nothing exceptionable about this. No fault fan be,,

found with the learned sole Arbitrator or the award for having reached this conclusion. Again, this is neither illegal let alone ‘patently illegal’, nor",,

is it even remotely unreasonable let alone perverse. In my view it is the only decision that any fair-minded arbitral tribunal or a Court could have arrive,,

at.,,

The final ground is that the Developers were not granted construction costs i.e. compensation for the work done. What the learned sole Arbitrator,,

held was that this work was of no use to the Society. It remained unknown whether this was in accordance with the sanctioned plans and there was,,

no evidence from the Developers that the part-done construction could be used by the Society to complete the project. This is purely an assessment on,,

merits. The challenge to it involves a re-appreciation of the evidence before the Arbitrator. That is impermissible.,,

These are the only points of challenge canvassed before me.,,

There is no substance in the Petition. It is dismissed. This being a commercial matter, costs would ordinarily have to be awarded to the successful",,

party unless reasons are recorded why costs should not be granted. Since the Society has terminated the Development Agreement, I decline to make",,

an order of costs.,,