Arbitration : Limits on the Powers of Arbitrator under Arbitration and Conciliation Act, 1996

Arbitration : Limits on the Powers of Arbitrator under Arbitration and Conciliation Act, 1996

In a recent Judgment, Award passed by Arbitrator has been set aside.

It is well settled that the Arbitral Tribunal being a creature of Contract cannot traverse beyond and is bound by the Contract. 

For the Arbitral Tribunal to examine the “real intention” of the parties, it would first need to hold that the terms of the Contract are ambiguous or vague.

When Arbitral Tribunal by disregarding the plain terms of the Contract, which are clear and unambiguous and infers a different intention from that contemplated by the terms of the Contract then it can be said that Tribunal has committed a patent illegality.

In this case, it was held that the said Contract between the Petitioner-Respondent and Respondent Claimant overrides and supersedes any prior or collateral correspondence, minutes or opinions, unless they are incorporated into the Contract. It is well settled that once the parties have reduced their understanding into a written agreement, the said agreement becomes conclusive of their intentions. The said Contract clearly and unambiguously provides that the Respondent-Claimant is liable to bear or to pay the royalty.

Where the Arbitral Tribunal departs from the terms of the Contract or acts beyond its jurisdiction by making a new Contract of the parties, such interference by High Court is not only be permissible but necessary. 

It was reiterated that the Supreme Court in Associate Builders Vs. Delhi Development Authority [2014] GCtR 1661 (SC) laid down that an Award would be liable to be set aside under Section 34, if it suffers from patent illegality, including contravention of substantive provisions of law; ignoring binding judicial precedents; or misconstruction of the terms of the Contract. The present case was one such case where the Award is liable to be set aside under Section 34 of the Arbitration Act, as it suffers from patent illegality.

The Arbitral Tribunal has in the present case improperly invoked Section 26 of the Specific Relief Act, 1963 by effectively rewriting the Contract, despite the absence of any pleading, prayer or issues framed to that effect. Section 26 of SRA, 1963 requires specific prayer for rectification of a written instrument supported by clear averments or pleadings. It is settled law that rectification of the Contract cannot be granted in the absence of a foundational plea and/or prayer. The Arbitral Tribunal has by rewriting the Contractual terms by invoking Section 26, has not only violated the procedural safeguards under the statute, but also offended the fundamental policy of Indian law, which requires adjudicatory bodies to remain within the scope of the dispute as framed by the parties.

For more details refer Konkan Railway Corpn Ltd v. SRC Company Infra Pvt Ltd [2025] GCtR 1703 (Bombay).