Court’s Decision
The Bombay High Court dismissed a petition under Section 34 of the Arbitration and Conciliation Act, 1996 filed by a real estate developer challenging an arbitral award that directed it to pay compensation to a flat purchaser for failure to deliver possession on time. The Court held that:
“The award passed by the learned Arbitrator is not perverse and does not suffer from any patent illegality.”
Reiterating the limited scope of judicial interference with arbitral awards, the Court found that the Arbitrator had correctly appreciated the evidence and arrived at a fair conclusion, and hence, no grounds were made out under Section 34 to set it aside.
Facts
The dispute arose out of a flat purchase agreement dated 27 February 2013 entered between a developer and a flat purchaser. Under the agreement, possession was to be handed over by 30 September 2014. However, the possession was eventually given on 23 February 2018. Aggrieved by the delay, the flat purchaser initiated arbitration proceedings seeking compensation for the delay in possession and for mental harassment caused.
The learned Sole Arbitrator passed an award in favour of the flat purchaser, awarding ₹26,56,800 as compensation for delay in handing over possession, and ₹2,00,000 as damages for mental harassment and litigation expenses, with interest at 9% p.a. from the date of award till payment.
The builder filed a petition under Section 34 of the Arbitration and Conciliation Act, 1996 before the High Court seeking to set aside the award on various grounds including jurisdiction, limitation, and alleged perversity.
Issues
- Whether the claim raised by the flat purchaser was barred by limitation?
- Whether the arbitral award was perverse, irrational, or suffered from patent illegality?
- Whether compensation and damages awarded by the Arbitrator were based on evidence and justified under the law?
Petitioner’s Arguments
The builder contended that the arbitration claim was barred by limitation as it was filed more than three years after the agreed possession date. It also argued that the delay was attributable to reasons beyond its control, including permissions and changes requested by the purchaser. The award, according to the petitioner, was perverse, suffered from non-application of mind, and failed to consider the documents and submissions in proper perspective.
The builder further submitted that compensation was arbitrarily calculated without proof of actual loss, and damages for mental harassment were speculative and not supported by evidence.
Respondent’s Arguments
The flat purchaser submitted that possession was handed over in February 2018 and the arbitration was initiated within the limitation period. It was argued that the Arbitrator rightly considered the significant delay and awarded compensation based on the agreed per month compensation clause in the agreement. As for mental harassment, the Arbitrator had duly noted the hardship, prolonged litigation, and inconvenience suffered by the purchaser over several years.
It was also pointed out that the award was a reasoned one, supported by documents, and did not suffer from any error warranting interference under Section 34.
Analysis of the Law
The Court examined the contours of Section 34 and reiterated that an arbitral award can only be set aside if it is:
- In conflict with the public policy of India;
- Patently illegal;
- Based on no evidence or misreading of evidence;
- Perverse or irrational.
The Court emphasised that arbitral awards are not to be lightly interfered with merely because another view is possible. As long as the Arbitrator has considered the material placed and given a plausible interpretation, the Court should not reappreciate the evidence.
The limitation argument was rejected on the ground that possession was delivered in 2018, and the arbitration was filed within three years from then.
Precedent Analysis
- Ssangyong Engineering v. NHAI, (2019) 15 SCC 131 – Cited to explain the narrow scope of Section 34 and the definition of patent illegality post the 2015 amendment to the Act.
- Associate Builders v. Delhi Development Authority, (2015) 3 SCC 49 – Relied upon for explaining when an arbitral award is said to be in conflict with public policy, particularly in terms of irrationality or perverse appreciation of evidence.
- State of Rajasthan v. Ferro Concrete Construction Pvt. Ltd., (2009) 12 SCC 1 – Used to reiterate that the court cannot act as an appellate authority over the Arbitrator’s conclusions if they are reasonably drawn from the record.
Court’s Reasoning
The Court noted that the Arbitrator had awarded compensation of ₹26,56,800 based on the agreed contractual clause (₹75,000 per month for delay), and this figure was supported by the number of months of delay. The award for mental harassment was modest and reasonable given the prolonged delay and litigation.
It was observed that:
“The learned Arbitrator has considered all the aspects and passed a reasoned award. It is not a case where no evidence was considered, or evidence was misread to a perverse extent.”
The Court held that the award did not violate any fundamental policy of Indian law and was not vitiated by patent illegality.
Conclusion
The petition under Section 34 was dismissed, and the arbitral award upheld in full. The Court found that the Arbitrator acted within his jurisdiction, gave a reasoned decision, and awarded compensation based on the contract and evidence placed before him.
Implications
- Reaffirms judicial restraint under Section 34 in interfering with arbitral awards.
- Recognises contractual clauses for compensation on delay in possession as enforceable through arbitration.
- Upholds damages for mental harassment and litigation hardship in property disputes.
FAQs
Q1. Can compensation for delayed flat possession be claimed even years later?
Yes, as long as the arbitration is initiated within three years from the date of final possession, the claim is within limitation.
Q2. Can mental harassment be compensated through arbitration awards?
Yes, if supported by the circumstances and evidence, arbitrators may award reasonable damages for mental harassment in housing delays.
Q3. When can a court set aside an arbitral award?
Only if the award is patently illegal, irrational, against public policy, or suffers from jurisdictional errors. Mere disagreement with the Arbitrator’s reasoning is not enough.
