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2025 (5) TMI 1740 - HC - Indian LawsAppeal filled under Section 37 of the Arbitration Conciliation Act 1996 - perverse reasoning - award purely on the basis of CA Certificates which were unauthenticated and with absolutely no supporting documents - patent illegality due to lack of any evidence to substantiate the claims of the Respondent/claimant - HELD THAT - It is noted that in the facts of that case the CA Certificate was considered as a valid document for the purpose of evaluating the claim and to that extent stood covered by the contract between the parties. In any event admittedly the authors of the various documents mentioned therein (accounts contract ledger and related documents) based on which the said certificates were drawn and which form the foundation of the said certificate have not been examined and the Respondent has therefore failed to provide any basis for the claims made by it. The Award of a sum of Rs. 65, 50, 795/- which is set out in paragraph 175 (iii) is the interest awarded on the amount which has been awarded under paragraph 175 (i). The said amount is completely based on the alleged CA Certificates and consequently would also stand disallowed. To wit any sums awarded based on the CA certificates would necessarily have to be disallowed. As regards the remaining challenge to the award one of which is with respect to the interest on profit and loss on delayed payment we have gone through both the majority and minority opinions of the Ld. AT and believe that no interference is required in the exercise of our jurisdiction under Section 37 of the A C Act. his Court is also of the opinion that the arbitration costs as awarded do not require any interference by this Court in the exercise of its jurisdiction under Section 37 of the A C Act. The present appeal along with the pending application stands allowed in the above terms.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Court in this appeal under Section 37 of the Arbitration & Conciliation Act, 1996 were:
2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Validity and evidentiary sufficiency of CA Certificates relied upon for claims of Basic Idling and Interest Relevant legal framework and precedents: The Arbitration & Conciliation Act, 1996 mandates that arbitral awards must be based on evidence. The Supreme Court has held in multiple precedents, including the recent decision in M/s. Unibros v. All India Radio (2023), that an award based on no evidence is perverse and against public policy under Section 34(2)(b) of the Act. The claimant must substantiate claims with credible and cogent evidence, especially for loss of profits or consequential damages. Court's interpretation and reasoning: The CA Certificates in question purported to certify amounts based on "Audited Books of Accounts," "Contract Ledger," and "related documents." However, the certificates lacked detailed breakup or particulars of the claimed amounts. The Chartered Accountant who signed the certificates was not examined as a witness, nor were the underlying documents produced or scrutinized. The Court noted that the CA certificates merely verified figures prepared by others and did not author or authenticate the foundational documents. The arbitral tribunal accepted these certificates without any reasoning or verification, effectively relying on ipse dixit of the claimant. Key evidence and findings: The CA Certificates tabulated expenses under various heads such as staff salary, wages, insurance, bank guarantee commission, and others, aggregating to Rs. 2,28,72,264.00 for two periods. Interest was computed at 20% per annum by the claimant, but the tribunal reduced it to 12% per annum as reasonable. The total awarded under this head was Rs. 3,72,43,618.00. However, the certificates did not disclose detailed particulars or supporting documents, nor was the CA cross-examined. The appellant challenged the certificates' authenticity and sufficiency before the tribunal and in the Section 34 petition, pointing out the absence of documentary proof and accounting records corroborating the claims. Application of law to facts: The Court held that acceptance of the CA Certificates without examination or verification of underlying documents amounted to acceptance of "no evidence." The certificates were vague, unsubstantiated, and did not fulfill the contractual mandate under Clauses 25.2 and 37 requiring particulars. The Court emphasized that an arbitral award cannot be sustained on mere assertions or uncorroborated certificates. Reliance on such documents without evidentiary foundation is perverse and contrary to public policy. Treatment of competing arguments: The respondent relied on precedents where CA Certificates were accepted as valid evidence, including a decision of this Court in National Highways Authority of India v. Hindustan Construction Company and Intex Technologies (India) Ltd. v. Union of India. The Court distinguished these cases on facts, noting that in those cases, the certificates were supported by contractual provisions or related to different factual contexts (e.g., CENVAT claims). Here, the certificates were unsupported by examination of authors of underlying documents or corroborative evidence. Conclusions: The Court concluded that the arbitral award and the impugned judgment upholding it were unsustainable insofar as they relied on the CA Certificates. Such reliance amounted to an award based on no evidence and was therefore perverse and liable to be set aside. Issue 2: Validity of claim for interest on profit-loss on delayed payment Relevant legal framework and precedents: Claims for interest on delayed payments must be supported by evidence showing the amount, period, rate, and calculation method. The principles laid down in Unibros (supra) require credible evidence to substantiate loss of profits or consequential damages. Court's interpretation and reasoning: The appellant contended that the claim for interest on profit-loss was based on no evidence, as there was no record in the Statement of Claim or affidavit specifying the delayed payment amount, period, or interest calculation. The Court examined the majority and minority opinions of the Arbitral Tribunal and found no reason to interfere with this part of the award. Key evidence and findings: The Court noted the absence of detailed challenge or cogent evidence disputing this claim and observed that the tribunal had considered the matter carefully. The appellant's challenge was confined primarily to the CA Certificates and related claims. Application of law to facts: Given the lack of compelling grounds to interfere and the tribunal's considered approach, the Court upheld the award of interest on profit-loss on delayed payment. Treatment of competing arguments: The appellant's submissions on this issue were not elaborated extensively, and the Court found the tribunal's reasoning sufficient. Conclusions: The Court declined to interfere with the award of interest on profit-loss on delayed payment. Issue 3: Challenge to the impugned judgment's silence on evidentiary objections and the scope of judicial interference under Section 34 of the A&C Act Relevant legal framework and precedents: Judicial interference under Section 34 is limited and courts generally do not interfere with arbitral awards on merits unless there is patent illegality or violation of public policy. However, courts must apply their mind to challenges raised and record reasons for acceptance or rejection of evidence. Court's interpretation and reasoning: The appellant pointed out that the learned Single Judge failed to address the challenge to the CA Certificates and evidence sufficiency in the Section 34 petition. The impugned judgment merely reiterated the principle that courts should not interfere lightly with arbitral awards but did not engage with the specific evidentiary objections. Key evidence and findings: The Court found that the impugned judgment lacked any application of mind or detailed reasoning on the central challenge to the CA Certificates and the absence of evidence. This omission was viewed as inadequate judicial scrutiny. Application of law to facts: The Court emphasized that mere deference to arbitral awards without addressing the core evidentiary challenges is insufficient. The failure to analyze the absence of evidence rendered the impugned judgment unsustainable. Treatment of competing arguments: The respondent did not offer substantive counterarguments on this procedural defect. Conclusions: The Court held that the learned Single Judge's failure to address the evidentiary challenge constituted a significant lacuna, justifying interference with the impugned judgment. Issue 4: Arbitration costs awarded by the Arbitral Tribunal Relevant legal framework and precedents: Arbitration costs are generally at the discretion of the tribunal and courts interfere only if the award is manifestly unjust or contrary to law. Court's interpretation and reasoning: The Court found no reason to interfere with the award of arbitration costs as made by the tribunal. Conclusions: The award of arbitration costs was upheld. 3. SIGNIFICANT HOLDINGS "The Award, as well as the impugned judgment, to the extent that it assumes that the alleged CA Certificates are the gospel truth without even examining the underlying documents upon which the claim is allegedly based, is completely unsustainable. The said CA certificates would effectively translate into being 'no evidence' at all." "If an award is based on no evidence at all, then it is perverse and against public policy." "The Chartered Accountant's certificate and the figures contained there-in are accepted and we allow the above said claimed amount of Rs. 2,28,72,264.00 ... However, the acceptance without examination of the underlying documents or the CA is not sustainable." "The impugned judgment is completely silent on this challenge. There is no application of mind on the part of the learned Single Judge ... This, to say the least, would not suffice." "The total amount of claim in respect of idling including interest thereon will be Rs. 3,72,43,618.00 ... but such award based on the CA certificates without evidence is liable to be disallowed." "The award of a sum of Rs. 65,50,795/- ... is completely based on the alleged CA Certificates and consequently, would also stand disallowed." "The claim regarding the interest on profit-loss on delayed payment awarded by the Ld. AT is also perverse as the same is also based on no evidence at all ... No interference is required in the exercise of our jurisdiction under Section 37 of the A&C Act." Core principles established include:
Final determinations:
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