The Calcutta High Court has emphasized that in arbitration cases, the directive to refund deposited consideration with interest must be examined in light of the parties’ behavior and admissions during the proceedings. The court noted that arbitration is distinct from court trials, and decisions made by arbitrators carry a degree of informality while still maintaining legal integrity.
A division bench of Justices Soumen Sen and Biswaroop Chowdury ruled:
"The learned arbitrator rejected the claim for specific performance of the contract as sought by the appellants. However, the appellants were directed to refund Rs.19.90 crores, which they had admittedly received as consideration. Interest was also awarded on this amount... The direction for refund with interest must be viewed within the context of the parties’ conduct and admissions during the proceedings. Arbitration proceedings differ from traditional court trials, as they carry an element of informality. The arbitrator’s perspective, as reflected in the award, must be evaluated accordingly while respecting the immunity that an arbitral award enjoys under the law."
Read Also:- CCTV Footage Reveals Police Assault: Calcutta High Court Warns of Harsh Action
Case Background
The appeal and cross-appeal arose from a composite order dated September 4, 2024, regarding applications to set aside arbitral awards under Section 34 of the Arbitration and Conciliation Act, 1996. The dispute stemmed from a Share Purchase Agreement (SPA) dated March 24, 2021, between the parties.
The appellants in APOT No.328 of 2024 were the respondents in the arbitration proceedings and also in the proceedings seeking to set aside the award in AP-COM No.388 of 2024 (formerly AP 777 of 2023). In the arbitration, the respondent sought specific performance of the contract and damages for breach, whereas the appellants counterclaimed for specific performance on their terms.
The arbitrator dismissed the counterclaim and denied specific performance. However, the appellants were ordered to refund Rs.19.90 crores, along with interest at 9% per annum from the date of filing the statement of claim until realization. The Single Judge upheld the award, dismissing both applications. Both parties challenged this order.
The dispute arose because the respondent had paid only Rs.19.92 crores out of Rs.29.52 crores and was accused of breaching its payment obligations. Partial payments were made by third parties, including Tirupati Vancom Private Ltd. (Rs.4.73 crore to the company and Rs.1.84 crore to shareholders) and Goldsmith Infrabuild Private Ltd. (Rs.69 lakh to individual shareholders of Deepak). These financial transactions complicated the issue of refund obligations.
Read Also:- Court Can Decline Arbitration Referral for Time-Barred Claims: Calcutta High Court
The court identified the primary dispute as the refund of consideration with interest. While Deepak contested the entire award, the cross-appellants challenged only the interest period, arguing that it should cover the time before the arbitration began.
Referring to Supreme Court precedents, the bench ruled that parties opting for arbitration must accept the arbitrator’s decision, and judicial review should remain minimal:
"When parties choose alternative dispute resolution, they must accept the arbitrator's wisdom. Courts should limit interference strictly to what is prescribed under Section 34 of the Arbitration and Conciliation Act."
The court clarified that erroneous legal interpretations are insufficient grounds to overturn an arbitral award unless the error is fundamental and affects the arbitrator’s jurisdiction. A claim must demonstrate patent illegality, violating substantive law, the Arbitration Act, or contractual terms to warrant setting aside the award.
Examining the parties’ conduct, the court found that Deepak had previously agreed to refund the consideration during arbitration and subsequent proceedings. Thus, it was inappropriate to argue against the refund order later.
"Given the parties’ conduct during and after arbitration, it is untenable to claim that the award is patently illegal or against public policy. To prove patent illegality, it must be shown that the award contravenes India’s substantive laws, the Arbitration Act, or the contract, or that it shocks judicial conscience."
Under Section 34(2)(b)(ii), an award can only be interfered with if the arbitrator’s findings are arbitrary, capricious, perverse, or shock judicial conscience. The court found no such basis for interference.
The bench upheld the tribunal’s decision that Deepak must refund the principal amount, ruling that interest naturally follows:
"The tribunal determined that Deepak must refund the entire consideration amount, even though specific relief was not sought in the Statement of Claim. There is no valid reason to separate the interest component from the refund. We concur with the Single Judge’s ruling. Challenges to the interest component fail in light of the limited scope of judicial intervention under Sections 34 and 37 of the Arbitration and Conciliation Act."
The court dismissed the challenge but, upon request, stayed the execution of proceedings for four weeks from the order date.
Case Details
Case Name: Deepak Bhargava & Ors. vs. Jagrati Trade Services Pvt. Ltd. & Ors.
Case Number: AP-COM/388/2024
Order Date: September 4, 2024
