High Court: An Arbitral Award cannot be set aside on the ground of insufficiency of Evidence

 

The disputes between the parties arose in connection with a Lease Deed in respect of a property. Smt. Kanta Batra [the Respondent/lessor] had leased the premises to Scholastic [the Appellant/ lessee] for a period of three years. A fire broke out in the said premises which caused damage to the premises leading to termination of the lease deed.

Appellant’s Contentions

Scholastic claimed that the incident of fire was a force majeure event and resulted in termination of the lease. It denied that it was liable to pay any lease rentals. It also denied that it was responsible for cause of fire or to reimburse any amount incurred thereto. In fact, a counter claim was made for refund of the security deposit.

Respondent’s Contentions

Respondent contended that the appellant was not entitled to terminate the lease during the lock-in period of initial 2 years as it is not in accordance with the agreed terms under the deed.

The respondent/lessor claimed lease rentals that the appellant was liable to pay for the remaining lease period as well as the expenditure incurred on repairs as the fire broke out on account of the negligence of the appellant/lessee.

Court’s observation

In the beginning, the disputes between the parties were referred to arbitration and the Arbitral Tribunal found that the fire had broken out as a result of the failure of the appellant to maintain its electrical equipment and hence, the respondent/lessor was entitled to the cost of repairs and damages.

For assessing the damages payable to the lessor, the Tribunal counted on the bank statements and Income tax statements of the lessor. Accordingly, the Tribunal passed an award that the lessor was entitled to the expenditure incurred to reconstruct & repair the leased premises.

Appellant challenged the arbitral award passed by the Tribunal, before the Commercial Court under Section 34 of the Arbitration and Conciliation Act, 1996.

The Commercial Court concurred with the Tribunal that the Lessor was liable to pay compensation for the damage caused to the premises under Section 73 of the Indian Contract Act, 1872 and rejected the claim of appellant for refund of security deposit. The Commercial Court went on to questioning the quantification of the damages payable to the lessor and held that the Arbitral Tribunal had grossly mistaken by relying on Income Tax Return and the bank statements furnished by the respondent as the same were not supported by a certificate under Section 65B of the Indian Evidence Act, 1872. No person can be saddled with any liability on the basis of any entries in the books of accounts. The Commercial Court ruled that award suffers from patent illegality.

Both the parties being aggrieved by the Order passed by the Commercial Court, filed cross appeals under Section 37 of the A&C Act before the Delhi High Court. The appellant/lessee, Scholastic India assailed the order of the Commercial Court which rejected its claim for refund of the security deposit. The respondent/lessor, Kanta Batra challenged the order of the Commercial Court on the ground that the Commercial Court had re-appreciated and revaluated the quantification of damages awarded by the Tribunal which is beyond court’s purview under Section 34 of the A&C Act.

Relying on Associate Builders v. Delhi Development Authority, the Delhi High Court held that the Commercial Court had gone ultra vires the Section 34 of the A&C Act by re-appreciating and re-evaluating the sufficiency of evidence in material produced by the lessor.

Delhi High Court also observed that Section 19(1) of the A&C Act also expressly provides that the Arbitral Tribunal would not be bound by the Code of Civil Procedure, 1908 or the Indian Evidence Act, 1872. In view of the above, an arbitral award cannot be faulted on the ground that it is non-compliant with the said statutes. The statements of bank account indicating certain entries to reflect that the Lessor had made payments to certain entities were, undoubtedly, relevant material.

The Court added that an arbitral award, which is based on no material or evidence at all, may be vitiated by patent illegality, however, an award cannot be set aside on the ground of insufficiency of evidence or material.

The High Court set aside the impugned order passed by the Commercial Court. Appeal by respondent/lessor was allowed and the appeal of the appellant/lessee was dismissed.

Case Title: M/s Scholastic India Pvt. Ltd. & Anr. v. Kanta Batra

Date: 4^th August 2022
Bench: Justice Vibhu Bakhru, Justice Amit Mahajan 

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(With input from news agency language)

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