Award In favour of appellant not severable from portion set aside for patent illegality: Karnataka high court

Karnataka High Court Rules: Appellant's Award Nullified Due to Patent Illegality Integration.

Case Details

Case Title: Krishna Murthy Constructions v. Perfect Electricals and Ors.

Coram: Chief Justice Vibhu Bakhru and Justice K.S. Hemalekha The Karnataka High Court has held that where the principal claim awarded in favour of a party is found to be patently illegal, the award is not severable and the entire award is liable to be set aside under Section 34 of the Arbitration and Conciliation Act, 1996.

The Division Bench of Chief Justice Vibhu Bakhru and Justice K.S. Hemalekha was dealing with an appeal under Section 37(1)(c) of the Act read with Section 13(1A) of the Commercial Courts Act, 2015, challenging an order of the Commercial Court that had set aside an arbitral award in a construction dispute.

Background

The dispute arose out of a contract for construction of a factory building at Dabaspet, Somapura Industrial Area, Nelamangala Taluk, Bengaluru Rural District. The appellant, a construction firm, had claimed Rs. 1,16,78,822 before the Arbitral Tribunal under various heads, while the respondents raised counterclaims of Rs. 7,65,41,494. The Tribunal awarded Rs. 17,12,425.97 to the appellant with interest at 18 per cent per annum from 17.08.2015, and Rs. 10,72,477 to the respondents on their counterclaim with interest at 18 per cent per annum from 01.05.2016.

The Commercial Court, in a petition filed by the appellant under Section 34, found that the amount payable to the appellant on the final bill was Rs. 47,03,455 and not Rs. 17,12,425.97 as awarded, holding the award to be against the evidence on record and patently illegal. It also faulted the Arbitral Tribunal for awarding Rs. 10,72,477 with interest to the respondents. The Commercial Court accordingly set aside the impugned award in its entirety. Although the appellant's Section 34 petition was allowed, it was aggrieved since the amount awarded in its favour stood set aside as well.

Arguments

The appellant contended that the impugned order was erroneous inasmuch as it also set aside the part of the claim that had been allowed in its favour, and that consequently the appellant would be required to commence arbitral proceedings afresh, including for the amount already awarded to it.

Findings

The High Court held that under Section 34, a court's examination is confined to determining whether the arbitral award is required to be set aside, and that the court does not have the power to modify an award except to the limited extent explained by the Supreme Court in Gayatri Balasamy v. ISG Novasoft Technologies Ltd. It reiterated that an award may be set aside partially where the offending portion is severable.

The Court observed that in the present case, the award in favour of the appellant was the principal claim, which the Commercial Court had found to be patently illegal. It held that the award in favour of the appellant was accordingly not severable, and that the Commercial Court had rightly set aside the award in its entirety.

The appeal was dismissed, and the appellant was relegated to agitate its claims afresh.