Judgement Name: M/s. Macro Marvel Projects Ltd. v. J. Vengatesh & Ors.

Citation: O.S.A.No.341 of 2019

Coram: Paresh Upadhyay, J. and D. Bharatha Chakravarthy, J.

Date: 28th September 2022.

Keywords: Section 34, Arbitration & Conciliation Act, 1996 (the ‘A&C Act’), Inequitable Contract, Specific Performance, Section 14, Specific Relief Act (the ‘SR’ Act), Section 20, SR Act.

Overview

A Two-Judge bench of the Madras High Court adjudicated that an Arbitral Award directing the specific performance of a contract, could not be set aside on the basis that the contract from which the dispute arose, was inequitable. Consequentially, the Madras High Court set aside the order of a Single Judge Bench of the Madras High Court.

Facts

Macro Marvel Projects Ltd. (“Appellant”) and Mr J. Vengatesh, A.R. Gomathi and V.Annalakshmi (“Respondents”) through their Power of Attorney, M.Arumugam, entered into an agreement of sale dated 17th February 2004. Under the terms of the agreement, the Respondents agreed to transfer land admeasuring 8.21 acres for a sale consideration of Rs. 3,85,000 per plot of land. An advance of Rs. 1,00,00,000 was agreed to be paid to the Respondents. Rs. 65,00,000 of this advance amount was to be paid to the Respondents upon the receipt of project finance by the deposit of title deeds of the property held by the Respondents. The Appellant had been authorised to identify buyers for the plots of land and enter into sale agreements for the same as well as obtain building licenses, etc. An arbitration clause had been inserted in the sale agreement under which all disputes that would arise out of the agreement would be referred to and settled by an Arbitral Tribunal in Chennai. Owing to a sudden rise in Real Estate prices, the sale consideration was revised upwards, first to Rs. 4,20,000 and then to Rs. 5,00,000. Subsequently, the Power of Attorney in favour of M. Arumugam was cancelled and the Respondents refused to execute further sale deeds for the unsold plots.

Given the Respondents’ refusal to execute the sale deeds for the unsold plots, the Appellant invoked the arbitration clause and after consultation with the Tribunal, filed a statement of claims in January 2007, praying for specific performance according to the terms of the agreement for sale, and further sought damages for delay in registering the sale deeds. The same was granted by the Tribunal.

The Respondents challenged this Award before a Single Judge Bench of the Madras High Court under Section 34 of the Arbitration Act. The Respondents contended that the Award suffered from patent illegality and was in violation of the fundamental policy of India. The learned Judge found that the agreement gave an undue advantage to the Appellant, and further that the Arbitrators had not considered Section 14(i) and 20(2) of the Specific Reliefs Act. An Award for specific performance was thus deemed to violate the public policy of India. The learned single Judge altered the Award of the Arbitral Tribunal and directed that a sum of Rs. 50,00,000 be paid to the Appellant by the Respondents within 6 months.

Aggrieved by this Judgement, the Appellant filed an intra-court appeal before a Two-Judge bench.

Issue

i. Whether an Award could be interfered with, varied or modified under Section 34 of the A&C Act?

ii. Whether the Court may interfere with an Award for Specific Performance when the contract is alleged to be inequitable and thus not specifically enforceable?

Analysis

With regards to the first question of variation or modification of the Arbitral Award, the Court held that under Section 34 of the A&C Act, any variance or modification of the Award and any grant of a new or modified relief is impermissible. The same was laid down in the case of Project Director, National Highways No.45 E and 220 National Highways Authority of India v. M.Hakeem and Anr. Thus, it was held that the Judge was not right in varying the Award of the Arbitral Tribunal and ordering the sum of Rs. 50,00,000 to be paid. The same was beyond the scope of the Court’s powers under Section 34. Citing Redfern and Hunter on International Commercial Arbitration, the Court held that the limited remedy granted under Section 34 is co-extensive with the limited right conferred by the Section, namely the right to either set aside the Award or to remand the matter. In doing so, the Court limited the broad application of powers under Section 34, that the learned single judge on the original side had sought to undertake.

With regard to the second question, concerning the grounds for interference, the Court found that there were several rival contentions of both the Parties which needed to be appreciated by the adjudicatory authority. These contentions would have been dealt with and considered by the Arbitral Tribunal when it appraised the evidence and rendered its finding that it was a case of specific performance. The mere possibility that a Court may, upon the construction of the documents and evidence submitted before it, may draw an alternate conclusion could not be sufficient ground to interfere with the Tribunal’s Award. The Court held that an attempt to interfere with a decided position laid down by the Arbitral Tribunal would amount to an appeal of the Tribunal’s Award, which falls outside the scope of the Court’s powers under Section 34. When the parties have chosen arbitration as the forum for the resolution of their disputes, the Arbitral Tribunal’s decision shall be final and shall not be interfered with unless one of the specific grounds which are available under Section 34 is present. Thus, there existed an implicit understanding, with the inclusion of an arbitration clause, that the Tribunal’s Award would be final, binding and not amenable to change, except when it is liable to be set aside under Section 34. In drawing this inference, the Court has displayed marked deference to the Award of the Arbitral Tribunal and placed strict limits on its powers of interference with the Arbitral Award.

Conclusion

The Court, therefore, set aside the order of the Single Judge of the Madras High Court, giving firstly, that, courts may not vary or modify the terms of an Arbitral Award under Section 34, and secondly, that to warrant interference under Section 34, presence of the specific grounds specified under the Section must be shown, and a mere possibility that the Court may have arrived at an alternate conclusion cannot warrant interference under the same.

[This case note has been authored by Ishan Mhapsekar, an Editor at Mapping ADR.]