Arbitrator cannot parties to act on a substituted contract-same shall be illegal or erroneous #indianlaws

When parties have arrived at a concluded contract and acted on the basis of those terms and conditions of the contract then substituting new terms in the contract by the Arbitrator or by the Court would be erroneous or illegal

As per Section 34 (2) of the Arbitration and Conciliation Act, 1996 an arbitral award may be set aside only if one of the conditions specified therein is satisfied. The Arbitrator’s decision is generally considered binding upon the parties and therefore, the power of the Court to set aside the award is to be exercised only in cases where the Court finds that the arbitral award is on the fact of it erroneous or patently illegal or in contravention of the provisions of the Act and thus Court shall not ordinarily substitute its interpretation for that of the Arbitrator.

In the present matter the award was challenged primarily on the grounds that one of party refused to honor one of the agreed terms pertaining to reimbursement of tax liabilities and secondly that it was against the public policy in India. It was argued that Arbitrator did not take into consideration the evidences on record namely offer; counter offer and letter of acceptance while passing the award and thus the award as passed was patently illegal and erroneous.

When parties have arrived at a concluded contract and acted on the basis of those terms and conditions of the contract then substituting new terms in the contract by the Arbitrator or by the Court would be erroneous or illegal. Arbitrator appointed by the parties is the final judge of the facts. The finding of facts recorded by him cannot be interfered with on the ground that the terms of the contract were not correctly interpreted by him.

It was held that the Arbitrator had gone into the details of dispute and rightly concluded that the responsibility of the parties was to abide by the terms and conditions of the Work Order. No patent illegality held to be present in the Award passed by the Arbitrator calling for interference under Section 34 of the Act.

On the issue of public policy an award can be set aside if it is contrary to fundamental policy of Indian law or the interest of India, or if there is patent illegality. The parties in the instead case had entered into concluded contract, agreeing terms and conditions of the said contract, which was finally acted upon. In such a case, the parties to the said contract cannot back out and challenge the award on the ground that the same was against the public policy.

Contract can be interpreted by an Arbitrator who is a Judge chosen by the parties to determine and decide the dispute. The Court is precluded from re-appreciating the evidence and to arrive at different conclusion by holding that the arbitral award is against the public policy. Award was accordingly held to be correct calling no interference as contemplated under Section 34 of the Act.

[Swan Gold Mining Ltd. vs. Hindustan Copper Ltd.]
(SC, 22.09.2014)