2015 (2) TMI 1411 - HC - Indian Laws

Challenge to award passed by the sole Arbitrator in the disputes arising between the Petitioner and the Respondent - ex parte Award requiring the Petitioner to pay to the Respondent together with interest @ 18% per annum from the date of the claim till realisation apart from costs of arbitral proceedings - HELD THAT - The Court finds that the learned Arbitrator has simply gone by the clauses in the agreement and even without scrutinising the calculation of the amount claimed by the Respondent, has awarded it in toto. The Court finds that this is a case where the Respondent is seeking to enforce terms and conditions of an agreement dated 1st March 2012 which are on the face of it opposed to public policy and clearly hit by Sections 23 and 28 of the Contract Act, 1872. The clauses of agreement appear to the Court to be wholly unconscionable and opposed to public policy and, therefore, hit by Section 23 of the Contract Act. An award based on the above clauses which promise the Respondent to recover an unconscionable sum would be clearly opposed to the public policy of India and likely to be interfered with under Section 34 (2) (b) (ii) of the Act. The above clauses clearly constitute an unconscionable restraint on the right of one of the parties to seek legal redress. The clauses are hit by Section 28 of the Contract Act. What is even strange is that even a copy of the said agreement is not made available to the other party. The Petitioner was only allowed to see/read the agreement. The Petitioner was required to contact the Centre Director with prior appointment. In fact, it is the Petitioner s case that he was not even given a copy of the agreement. It shocks the judicial conscience that the Arbitrator mechanically proceeded to pass an Award in favour of the Respondent on the basis of the aforementioned patently illegal clauses of the contract. The Court is unable to sustain the impugned Award of the learned Arbitrator - the impugned Award is hereby set aside. The petition is allowed.

Summary

Issues:
1. Challenge to an arbitration award under Section 34 of the Arbitration and Conciliation Act, 1996.
2. Validity of the ex parte award requiring payment by the petitioner to the respondent.
3. Examination of the employment agreement between the parties.
4. Determination of the legality and enforceability of the clauses in the agreement.
5. Consideration of public policy and statutory provisions under the Contract Act.
6. Assessment of the arbitrator's decision-making process and the legality of the award.

Analysis:

The judgment involves a challenge to an arbitration award under Section 34 of the Arbitration and Conciliation Act, 1996. The award in question was ex parte, directing the petitioner to pay a specified amount to the respondent along with interest and costs. The respondent, a division of a larger educational services company, had employed the petitioner as a faculty member under an agreement containing contentious clauses. The petitioner alleged coercion and undue influence in signing a fresh contract in 2012, leading to disputes and eventual rescission of the agreement in 2012.

The court scrutinized the agreement clauses, focusing on the mandatory notice period, damages for breach, and the requirement to submit undated blank cheques. The clauses were found to be unconscionable and against public policy, violating Sections 23 and 28 of the Contract Act, 1872. The court highlighted specific clauses that imposed unreasonable obligations on the petitioner, such as the notice period, damages calculation, and the cheque submission requirement. These clauses were deemed oppressive and not legally enforceable.

Furthermore, the court emphasized that the arbitrator had failed to critically evaluate the agreement's terms and blindly awarded the disputed amount to the respondent. The court concluded that the arbitrator's decision was flawed, as it upheld illegal clauses and did not consider statutory provisions and public policy implications. The judgment highlighted the arbitrator's mechanical approach in passing the award based on unlawful contract terms, leading to the setting aside of the impugned award.

In light of the unconscionable clauses and the violation of statutory provisions, the court set aside the arbitration award, ruling in favor of the petitioner. The judgment underscored the importance of upholding public policy and legal principles in contractual agreements, especially in the context of employment contracts. The court's decision serves as a reminder of the judiciary's role in safeguarding individuals from oppressive and unfair contractual terms, ensuring justice and equity in commercial relationships.