Delhi High Court Reaffirms Minimal Judicial Intervention in Arbitration Under Section 34

In a recent decision, the Delhi High Court, presided over by Justice Sachin Datta, underscored the principle of minimal judicial interference in arbitration proceedings under Section 34 of the Arbitration and Conciliation Act, 1996. The Court dismissed the petition challenging the arbitral award, affirming that as long as the view taken by the arbitrator is plausible and based on the facts of the case, it should not be set aside. The case, titled Rudra Buildwell Pvt. Ltd. v. Realworth India Pvt. Ltd., involved a dispute over specific performance of a property sale agreement, and the ruling reinforces the importance of respecting the arbitrator’s findings.

Case Background: Rudra Buildwell Pvt. Ltd. v. Realworth India Pvt. Ltd.

The dispute arose from an agreement to sell dated December 30, 2009, where Realworth India Pvt. Ltd. (respondent) became the owner of a property and entered into a sale agreement with Rudra Buildwell Pvt. Ltd. (petitioner). The respondent received the sale consideration of ?5 crores but failed to fulfill its contractual obligation to either refund an additional sum of ?5.52 crore or execute the sale deed within the stipulated 72-day period. This breach prompted the petitioner to initiate arbitration.

The arbitral tribunal, in its award dated April 12, 2022, rejected the petitioner’s claim for specific performance of the contract, instead directing the respondent to refund the sale consideration along with interest, totaling ?10.37 crore. Dissatisfied with the award, the petitioner sought to set it aside under Section 34, arguing that the arbitrator had no discretion once 100% payment was made and that specific performance was a mandatory remedy.

Petitioner’s Contentions

1. Mandatory Relief of Specific Performance: The petitioner argued that once the entire sale consideration had been paid, the arbitrator was obligated to grant specific performance as per precedents set by the Supreme Court in Leeladhar v. Vijay Kumar (2020) and Ferrodous Estates v. P. Gopirathnam (2020). The petitioner maintained that the respondent had no option to refund the amount after the 72-day period specified in the agreement had lapsed.
2. Inconsistent Pleadings by Respondent: The petitioner pointed out inconsistencies in the respondent’s stance, noting that while the respondent initially claimed physical possession was handed over on the date of the agreement, it later sought compensation for delays in possession. The petitioner argued that such inconsistencies should have warranted a ruling in favor of specific performance.

Respondent’s Arguments

The respondent defended the arbitral tribunal’s decision, asserting that the arbitrator had rightly exercised discretion in not granting specific performance. It was argued that the petitioner’s prolonged silence and failure to demand specific performance in a timely manner indicated a lack of readiness and willingness to execute the sale deed.

The respondent highlighted the ambiguous conduct of the petitioner, who had inconsistently sought both possession of the property and compensation for delay, thus undermining its claim for specific performance.

Court’s Analysis

Justice Sachin Datta’s judgment emphasized several key points:

1. Discretionary Relief Under Specific Relief Act: The Court noted that specific performance is not an automatic remedy under the Specific Relief Act, 1963. Citing Section 20 (pre-2018 amendment), the Court clarified that granting specific performance is discretionary, guided by sound judicial principles rather than being mandatory even if it is lawful.
2. Conduct and Willingness of Parties: The Court observed that the petitioner’s conduct, including the delay in seeking relief and the inconsistent pleadings, demonstrated a lack of clear intent to perform its part of the contract. This ambiguity played a significant role in the tribunal’s decision to deny specific performance.
3. Application of Plausible View Doctrine: The High Court reiterated the principle that an arbitral award should not be set aside if it reflects a plausible view based on the facts and evidence presented. Justice Datta cited the Supreme Court’s ruling in Katta Sujatha Reddy v. Siddamsetty Infra Projects (2023), emphasizing that judicial interference under Section 34 is limited to instances of patent illegality or fundamental errors that no reasonable person would make.
4. Ambiguity in Petitioner’s Claims: The Court found that the petitioner’s inconsistent statements regarding possession and compensation undermined its claim for specific performance. The Court referred to the Supreme Court’s judgment in P. Sudhakar Reddy v. M. Chalapathi Reddy (2006), which held that ambiguous pleadings weaken a party’s case for discretionary relief.

Conclusion

The Delhi High Court dismissed the petition, upholding the arbitral award and reaffirming the limited scope of review under Section 34 of the Arbitration Act. The ruling emphasized that courts should not substitute their own views for those of the arbitrator unless there is a clear case of perversity or patent illegality. The judgment sends a strong message supporting the autonomy of the arbitral process and underscores the need for consistent and clear pleadings in seeking equitable relief.

This decision aligns with India’s pro-arbitration stance and reinforces the importance of respecting the arbitrator’s findings as long as they are grounded in evidence and follow a plausible reasoning framework.