The Delhi High Court (“High Court”) in its judgment dated August 4, 2022 in the case of, Messrs. Scholastic India Private Limited v. Smt. Kanta Batra, (FAO (COMM) 112/2022), while discussing the scope of interference with an arbitral award under Section 34 of the Arbitration & Conciliation Act, 1996 (“Act”) has reaffirmed the position that a Court cannot reappreciate or re-evaluate the evidence and supplant its opinion over that of the arbitral tribunal in proceedings under Section 34 of the Act. The High Court has further held that the Indian Evidence Act, 1872 (“Evidence Act”) does not apply to proceedings before an arbitral tribunal and therefore, an arbitral award cannot be faulted on the ground that it is non-compliant with the Evidence Act.

Brief factual background of the matter:

The dispute in the matter arose in connection with a Lease Deed dated March 8, 2013, executed between Smt. Kanta Batra (“Lessor”) and Scholastic India Private Limited (“Lessee”) with respect to a property situated in Gurugram, Haryana. A fire broke out in the property on August 18, 2014 damaging the leased property. Thereafter, the Lessor completed repair work on March 8, 2015, however, the Lessee refused to resume the possession of the premises on the ground that the Lease Deed stood terminated because of the force majeure event. The said dispute was accordingly refereed to Arbitration.

Arbitration Proceedings:

In the arbitration proceedings, the Lessor claimed that the Lessee was not entitled to terminate the lease during the lock-in period and accordingly raised claims pertaining to rentals as well as expenses incurred in repairs of the said premises on the basis that the fire had broken on account of negligence of the Lessee. The Lessee disputed the claims by stating that the incident of fire was a force majeure event resulting in termination of the lease and claimed refund of the security deposit and other expenses incurred due to the fire incident.

Impugned Arbitral Award:

The arbitral tribunal held that the Lessee was not entitled to terminate the lease during the lock-in period without notice or without any breach on the part of the Lessor. Further, the arbitral tribunal observed that the fire had broken out as a result of the failure on the part of the Lessee to maintain its electric equipment and hence the Lessor was entitled to the cost of repairs. The arbitral tribunal for the quantification of the damages payable, relied on the bank statements of the Lessor indicating the expenditure on the repair work.

Proceedings before the Commercial Court under Section 34 of the Act:

The Lessee challenged the award under Section 34 of the Act. The Commercial Court concurred with the findings of the arbitral tribunal with regards to the Lease Deed not having been terminated due to force majeure as claimed by the Lessee. The Commercial Court also held that the finding that the fire was caused due to snag in electrical equipment was based on evidence on record and therefore could not be interfered with under Section 34 of the Act.

However, the Court did not concur with the decision of the arbitral tribunal regarding quantification of the damages as the arbitral tribunal had relied upon documents which were not supported by a certificate under Section 65B of the Evidence Act. In view of the same, held that the impugned award was based on no evidence and therefore suffered from patent illegality. The Commercial Court also rejected the Lessee’s contention regarding the refund of the security deposit.

Cross Appeals under Section 37 of the Act:

Cross Appeals under Section 37 of the Act were filed by both the parties before the High Court. The Lessee challenged the order rejecting the Lessee’s claim for the refund of the security deposit. The Lessor challenged the order on the ground that the Court had re-appreciated the evidence regarding the quantification of damages awarded by the arbitral tribunal and the same was beyond the scope of Section 34 of the Act.

Findings and decision of the High Court in the Cross Appeals:

The High Court while discussing the scope of interference under the Section 34 of the Act, observed that it is well settled that a court cannot reappreciate or re-evaluate the evidence and supplant its opinion over that of the arbitral tribunal in proceedings under Section 34 of the Act. The Court further observed that the Evidence Act does not apply to proceedings before an Arbitral Tribunal and therefore, an arbitral award cannot be faulted on the ground that it is non-compliant with the same. The Court further held that insufficiency of evidence or material is not a ground for setting aside an arbitral award. The Court also held that Income Tax Return corroborated by the Bank Statement furnished by the Lessor clearly indicated the expenditure incurred by the Lessor and the same was material evidence.

In conclusion, the High Court held that the Commercial Court by re-evaluating the sufficiency of evidence in material produced by the Lessor and by faulting the Arbitral Tribunal in appreciating the sufficiency of the said material, had acted outside the scope of the Section 34 of the Act. Accordingly, in the Cross Appeals, the High Court allowed the appeal of the Lessor and dismissed the Lessee’s Appeal.

Please find attached a copy of the judgment.

This update has been contributed by Namitha Mathews (Partner) and Pragalbh Bhardwaj (Associate).

Argus Knowledge Centre is now on WhatsApp! Send us a message on +91 8433523504 to receive updates from our Knowledge Centre.