Court Cannot Set Aside Entire Arbitral Award Due To Fraud In One Claim When Other Claims Rest On Different Grounds: Jharkhand High Court

Brief Facts:

On 29.01.2011, Ranchi Municipal Corporation (RMC) entered into an agreement with M/s. A to Z Infrastructure Limited for a Municipal Solid Waste Management project in Ranchi, after M/s. A to Z Infrastructure Limited was selected as the successful bidder.

Subsequently, M/s. A to Z Infrastructure Limited established a special purpose vehicle, M/s. A to Z Waste Management, Ranchi Limited ( 'Contractor'/ Respondent), and a Concessionaire agreement was executed on 03.06.2011, with retrospective effect from 01.04.2011.

During the course of the project, disputes arose between the parties, leading the Contractor to terminate the contract on 27.12.2013, citing clause 9.2 (C). The Contractor invoked the arbitration clause (Article 11.2(a)) of the Concessionaire agreement on 07.04.2014.

On 11.05.2018, arbitral award was passed in favour of the Contractor directing RMC to pay Rs.6,41,24,500/-

The Commercial Court while deciding challenge under section 34 of the Arbitration Act noted the 44 decisions cited by both sides before it.

The Commercial Court rejected the Contractor's plea of limitation, noting that under Section 34 of the Arbitration Act, the scope for challenging an arbitral award is narrow. It emphasized that parties cannot re-argue or re-agitate issues raised before the arbitrator, and the arbitrator's judgment on the facts and evidence must be upheld.

The court further noted that the arbitral tribunal held that the Contractor was guilty of committing fraud and fraud would vitiate all solemn acts and so the Contractor is not entitled to any amount regarding claim of the Contractor that it procured numerous vehicles and incurred Rs. 1.68 crores in expenditure for capital grants towards vehicles, equipment, and assets used in C&T operations, which had not been paid.

Against the above decision, the present appeal has been filed under section 37 of the Arbitration Act.

Observations:

The court at the outset noted that the arbitral tribunal found that the non-payment of the tipping fee for December 2013 and the delay in payments from April to August 2011 constituted a breach of contract by the RMC. However, the claim regarding the 'supply of vehicles' was unrelated to the 'non-payment of the tipping fee' and was rejected by the tribunal due to fraud.

Based on the above, it held that when the claims are unrelated to each other, on the basis of a fraud with regard to the claim regarding procurement of vehicles, the Commercial Court could not have interfered with the arbitral award with regard to the award of the claim to the Contractor regarding tipping fee.

The court further observed that the arbitral tribunal awarded Rs. 2 crores as nominal damages to the Contractor, instead of Rs. 9,62,04,313/- for another claim related to C&T operations, along with costs of Rs. 55 lakhs. The submission of the Contractor's counsel that this issue, addressed in Para 475, was unrelated to the 'supply of vehicles' claim, and that the Commercial Court erred in interfering with the award of Rs. 2 crores was accepted.

It further said that the arbitral tribunal awarded costs of Rs. 55 lakhs to the Contractor because the RMC, despite the mandate of the Arbitral Tribunal had refused to pay the arbitral fee of Rs. 30 lakhs to each member of the tribunal, which the Contractor had to pay. The tribunal held that the Contractor was entitled to the said amount.

It further opined that a cost of Rs. 25 lakhs was awarded to the Contractor against the RMC. This award of costs has no relation to the tribunal's findings regarding the alleged fraud by the Contractor concerning the 'procurement of vehicles' claim.

Based on the above, it held that to the extent the Commercial Court interfered with the award of the arbitral tribunal in favour of the Contractor, its judgment was set aside.

The court concluded that RMC failed to provide sufficient cause for condoning the delay of 320 days in filing Commercial Appeal No. 16 of 2024 against the judgment of the Commercial Court dated 05.01.2024 in Commercial Arbitration Case No. 11 of 2023.Therefore, I.A. No. 12521 of 2024 in Commercial Appeal No. 16 of 2024 was dismissed, and consequently, Commercial Appeal No. 16 of 2024 was also dismissed.

Case Title: Ranchi Municipal Corporation Versus M/s A2Z Waste Management (Ranchi) Limited

Case Title: I.A. No. 12521 of 2024 In/and Commercial Appeal No. 16 of 2024 and Commercial Appeal No. 16 of 2024

Judgment Date: 06/05/2025

For the Appellant : Mr. Sachin Kumar, Advocate Mr. Sashank Sekhar, Advocate.

For Respondent : Mr. Sumeet Gadodia, Advocate. [Commercial Appeal No. 16 of 2024]

For the Appellant : Mr. Sumeet Gadodia, Advocate.

For Respondent : Mr. Sachin Kumar, Advocate Mr. Sashank Sekhar, Advocate. [Commercial Appeal No. 3 of 2024]

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