2024 (7) TMI 1464 - HC - Companies Law

Challenge to arbitral award - non-consideration of the facts - rights of the petitioner bank against whom the same recovery is sought by the committee of creditors in the IBC proceedings - Section 34 of the A C Act - HELD THAT - The Supreme Court in PSA SICAL Terminals (P) Ltd. v. Board of Trustees of V.O. Chidambranar Port Trust Tuticorin, 2021 (7) TMI 1456 - SUPREME COURT , inter-alia held that ' It is only such arbitral awards that shock the conscience of the court, that can be set aside on the said ground. An award would be set aside on the ground of patent illegality appearing on the face of the award and as such, which goes to the roots of the matter. However, an illegality with regard to a mere erroneous application of law would not be a ground for interference. Equally, reappreciation of evidence would not be permissible on the ground of patent illegality appearing on the face of the award.' It is important to remember that the position with respect to the limited interference of the courts has changed slightly in light of the 2015 Amendment to Section 34 of the A C Act. The scope of violating Indian public policy has been expanded to include fraud or corruption in the award-making process, violating Sections 75 or 81 of the Act, violating the fundamental policy of Indian law, and going against the most fundamental ideas of justice or morality as a result of the addition of Explanation 1 to Section 34(2). Furthermore, Section 34 now contains sub-section (2-A), which states that in the event of domestic arbitrations, patent illegality appearing on the face of the verdict also constitutes a breach of Indian public policy. This court at the stage of challenge under section 34 has to only prima facie see if there is a patent illegality in the impugned award which shocks the conscience of the court. Further, this court cannot appraise the evidence or merits in a challenge under section 34 of the A C Act. The mere fact that another reasonable conclusion can be drawn from the case s merits does not give the power to this court to interfere with the arbitral award. The award passed by the learned arbitrator is found to be correct and in accordance with the law. Petition dismissed.

Issues Involved:
1. Challenge to the arbitral award under Section 34 of the Arbitration and Conciliation Act, 1996.
2. Jurisdiction of NCLT under Section 60(5) of the Insolvency Bankruptcy Code, 2016.
3. Timeliness of the claim under the Assignment Agreement.
4. Entitlement to interest prior to the date of the award.

Issue-wise Detailed Analysis:

1. Challenge to the Arbitral Award under Section 34 of the Arbitration and Conciliation Act, 1996:
The petitioner challenged the arbitral award dated 19.02.2022, arguing that it was vitiated by non-consideration of facts and was in conflict with public policy and basic notions of justice, as stipulated under Section 34(2) and 34(2A) of the A&C Act. The court emphasized that the scope of challenging an arbitral award is limited, as outlined by the Supreme Court in various judgments like PSA SICAL Terminals (P) Ltd. v. Board of Trustees of V.O. Chidambranar Port Trust Tuticorin and MMTC Limited v. Vedanta Limited. The court reiterated that it cannot act as an appellate court and reappreciate evidence, and interference is warranted only when the award is in violation of the public policy of India or is patently illegal.

2. Jurisdiction of NCLT under Section 60(5) of the Insolvency Bankruptcy Code, 2016:
The petitioner argued that the arbitral proceedings were not maintainable as the question regarding the ECGC money was raised before the NCLT. The respondent countered that the petitioner failed to establish how the grounds advanced fell within the limited scope of Section 34(2) of the A&C Act. The learned arbitrator found that the NCLT did not have jurisdiction to adjudicate the inter se dispute between the petitioner and the respondent regarding the ECGC Claim Amount. The court upheld this finding, noting that the arbitration award would determine which party retains the ECGC Claim Amount without affecting the rights of any third party not participating in the arbitration.

3. Timeliness of the Claim under the Assignment Agreement:
The petitioner contended that the claim was barred by time, arguing that it should have been made within three years from the execution of the Assignment Agreement or the transfer of monies. The arbitrator found that the cause of action for recovering the ECGC monies accrued when the respondent learned of the amount during the CoC meeting and the petitioner denied payment. The court agreed with the arbitrator's finding that the claim was within time, noting that the petitioner did not disclose required documents, contributing to the delay.

4. Entitlement to Interest Prior to the Date of the Award:
The petitioner challenged the arbitral award's conclusion that it was not entitled to pre-award interest. The respondent argued that Clause 2.2.6 of the Assignment Agreement stipulated the rate of interest, which was not applicable since there was no delay by the petitioner in passing on the ECGC monies. The arbitrator held that the petitioner had agreed to pass on all economic benefits pertaining to the loan, including realizations made after the cut-off date, and thus was not liable for interest under Clause 2.2.6. The court upheld this finding, noting that the refusal of the petitioner was bona fide, though it did not withstand adjudication.

Analysis and Conclusion:
The court concluded that the learned arbitrator acted in accordance with the law and the arbitral award did not affect the public policy of India or any other law. The court emphasized that its role under Section 34 is limited to checking for patent illegality and cannot reappraise evidence or merits. The arbitral award was found to be correct and in accordance with the law, leading to the dismissal of the petitions.

Separate Judgments:
The court addressed two petitions (O.M.P. (COMM) 89/2023 and O.M.P. (COMM) 119/2023) challenging the same arbitral award on different grounds. Both petitions were dismissed, with the court affirming the arbitral award's findings and rejecting the challenges raised by the petitioner.

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