Mutually Contradictory Findings By Same Arbitrator At Different Stage Of Proceedings Renders Final Award Patently Illegal: Madras High Court
The Madras High Court held that declaring earlier proceedings non est, even when no objections were raised regarding the recording of the undertaking in those proceedings, constituted a perverse finding. The Court observed that such proceedings, which merely recorded an undertaking, could not fall within the ambit of Section 31 of the Arbitration and Conciliation Act, 1996 (Arbitration...
The Madras High Court held that declaring earlier proceedings non est, even when no objections were raised regarding the recording of the undertaking in those proceedings, constituted a perverse finding. The Court observed that such proceedings, which merely recorded an undertaking, could not fall within the ambit of Section 31 of the Arbitration and Conciliation Act, 1996 (Arbitration Act) as they did not amount to an order. Raising this issue suo motu was held to be a violation of the principles of natural justice. The Court further noted that the arbitrator's final award contradicted his earlier findings under Section 17 of the Act, thereby rendering the award patently illegal.
Justice N. Anand Venkatesh held that “the finding that was rendered at the time of passing the interim order and the finding that was rendered at the time of passing the final award are mutually contradictory. The above perverse finding is also irrational, since the same Arbitrator could not have rendered one finding at the time of passing the interim order and a completely conflicting finding at the time of passing the final award.”
Background:
Truliv Properties and Services Pvt. Ltd (Petitioner) entered into lease with C. Ravishankar (Respondent) who is an owner of 20 flats in the project Sobha Serene, Chennai. Under the agreement, Truliv had invested Rs. 32.4 lacs and invested further in furnishing the flats. Later, Truliv discovered that the respondent had given an undertaking before another tribunal that it will not alienate or encumber the same property. Truliv sought termination of the agreement and demanded a refund which was refused. Arbitration commenced and the arbitrator directed Truliv to pay Rs. 1.99 crore to the respondent towards counter claims. Aggrieved, Truliv had filed the petition under section 34 of the Arbitration Act.
Findings:
The court observed that the arbitral award suffered from multiple infirmities both procedural and substantive. On Arbitrator's finding that the undertaking before the earlier tribunal was non est since it had not been signed by all the members, the court observed that “the proceedings dated 27.12.2016 cannot even be considered to be an order, since the Arbitral Tribunal merely recorded the undertaking given by the respondent. To read Section 31 of the Act into the said proceedings and give a finding that it is non est in the eye of law, is clearly a perverse finding.”
The court further observed that it is quite surprising that the arbitrator had rendered a finding on issue of non-est of impugned order even though the respondent had not pleaded the same. This finding goes against section 34(2)(d)(iv) of the Act.
On arbitrator's finding that unregistered lease deed would be considered an oral agreement governed by sections 106 and 108 of the Transfer of Property Act, 1882, the court found the conclusion to be wholly perverse. It held that “The finding of the learned Arbitrator has no legal basis, since the learned Arbitrator has presumed that there is an oral agreement when in fact, there was a written agreement between the parties... The Arbitrator has re-written the contract itself, which is a patent illegality falling foul of Section 34(2A) of the Act.” The court held that section 108 of the Transfer of Property Act applies only in case of absence of a contract to the contrary which is not the case here since a valid written agreement existed between the parties.
The court noted that the arbitrator had directed Truliv to pay rent of Rs. 2.32 crore for four years despite acknowledging that the project was halted soon after discovery of the prior injunction. The court held that “the Arbitrator directing the petitioner to pay rents to the respondent for the period from 11.09.2019 to 31.05.2023 is more in the nature of giving premium for the illegality committed by the respondent... such finding also shocks the conscience of this Court.”
The court further held that the petitioner is undergoing mental agony from the year 2019 due to the act of the respondent for which the petitioner is entitled for damages. Accordingly, the arbitral award was set aside on grounds of patent illegality and violation of natural justice.
Case Title: TRULIV Properties and Services Private Limited Vs C.Ravishankar
Case Number: Arb O.P(Com.Div.) No.353 of 2025 AND Appln No.3025 of 2025
Order Date: 06/10/2025