Court’s Decision
The Bombay High Court set aside the arbitral award dated 23 December 2017 and the additional award dated 16 February 2018 under Section 34 of the Arbitration and Conciliation Act, 1996, holding that the arbitral tribunal had committed a perversity and violation of basic notions of justice and morality by treating the investor’s contractual rights as obligations, thereby denying relief despite clear findings of breach and deceit.
Justice Somasekhar Sundaresan observed, “The Impugned Award shocks the conscience of any reasonable person applying commercial common sense. A party found guilty of deceit has been allowed to get away with no consequence.”
Facts
The dispute arose out of an equal 50:50 joint venture (“Milton JV”) between two groups—one being the investor group and the other being the promoter-manufacturer group engaged in the Milton and Hamilton brands of kitchenware. The joint venture was governed by a Joint Venture Agreement (JVA) dated 13 September 2000 and a Brand Licensing Agreement executed on the same day.
Under the arrangement, the promoter group was to manufacture and the joint venture company was to market the products exclusively under the Milton brand. Both parties were to hold equal board representation and were bound by non-compete obligations restricting the promoter group from conducting parallel business under competing brands.
The investor group alleged that from 2005–06, the promoter group began diverting the entire business to another company, Hamilton Housewares Pvt. Ltd., secretly using the Milton brand and cannibalising the JV’s operations. The Milton JV’s turnover fell from ₹30.85 crore in 2004–05 to ₹71,000 in 2013–14, while Hamilton’s sales soared to ₹595 crore.
Upon discovery of this diversion in 2011, the investor group sought a declaration of continuing breach, injunction against non-compete violations, and damages equivalent to Hamilton’s profits. The promoter group denied liability, arguing that the investor had abandoned the JVA, acquiesced in the arrangement, and failed to perform its own obligations under the agreement.
The sole arbitrator ruled that while the promoter group had indeed breached the JVA, lied on oath, and diverted the business, the investor group was not “ready and willing” to perform its obligations and hence not entitled to relief. Both sides challenged the award—one seeking to set it aside, the other seeking to expunge adverse findings.
Issues
- Whether the arbitral tribunal erred in treating the investor’s contractual rights under the JVA as obligations.
- Whether the findings of deceit, fraud, and continuing breach could stand when no relief was granted.
- Whether the arbitral award was perverse, contradictory, or against the fundamental policy of Indian law.
- Whether partial setting aside of adverse findings was permissible under Section 34.
Petitioner’s Arguments
The investor group contended that the arbitral tribunal had misconstrued its contractual rights as obligations, holding it responsible for “not managing” the joint venture—an interpretation alien to the JVA’s language. It argued that rights to participate in management cannot be converted into mandatory duties, and that readiness and willingness were irrelevant since it sought enforcement of its existing rights against admitted breaches.
They further submitted that despite clear findings of fraud, deceit, and breach of non-compete obligations by the promoter group, the tribunal had perversely denied damages and injunctions. Such findings, it was argued, rendered the award self-contradictory, illogical, and shocking to commercial conscience, violating Section 34(2)(b)(ii) of the Act.
Respondent’s Arguments
The promoter group defended the award as a plausible interpretation of the contract, contending that the investor’s non-participation amounted to abandonment and that “readiness and willingness” to perform was a necessary pre-condition for relief. They also sought partial setting aside of the findings labelling them deceitful, on the ground that such “would-have-been” findings were unnecessary once no relief was granted.
They argued that the arbitral tribunal’s interpretation fell within the permissible limits of Section 34 review and did not amount to perversity or patent illegality.
Analysis of the Law
Justice Sundaresan examined the scope of interference under Section 34, relying on leading precedents—Dyna Technologies, Associate Builders, Ssangyong Engineering, Konkan Railway, and OPG Power—holding that an award can be interfered with only when it is perverse, contrary to contract, or conflicts with the most basic notions of justice or morality.
The Court noted that perversity arises when findings are mutually destructive or when no reasonable person could have arrived at them. Applying these standards, it found the award internally inconsistent: the arbitrator had simultaneously held that (i) the JVA subsisted, (ii) the promoter group committed continuing breaches, and yet (iii) no relief could be granted because the investor had failed to perform its obligations.
Precedent Analysis
- Dyna Technologies Pvt. Ltd. v. Crompton Greaves Ltd. (2019) 20 SCC 1 – Reaffirmed that courts should not interfere with awards unless findings are so perverse as to shock the conscience. The High Court cited it to highlight the high threshold for interference, which, however, was crossed here due to blatant contradictions.
- Associate Builders v. DDA (2015) 3 SCC 49 – Defined “fundamental policy of Indian law” and “justice or morality” under Section 34(2)(b)(ii). Used to underscore that denial of relief despite proven deceit offends justice.
- Ssangyong Engineering & Construction Co. Ltd. v. NHAI (2019) 7 SCR 522 – Clarified that awards violating contractual terms or based on irrational reasoning are liable to be set aside.
- Konkan Railway v. Chenab Bridge Project Undertaking (2023 INSC 742) – Reiterated limited judicial review but permitted interference when findings defy logic or contractual basis.
- OPG Power v. Enoxio (2025) 2 SCC 417 – Recently summarised the tests for “morality, justice, patent illegality, and perversity,” which the Court applied here.
Court’s Reasoning
Justice Sundaresan held that the arbitral tribunal’s approach imported a public-law concept of “power coupled with duty” into a private commercial contract, equating managerial rights with obligatory duties. This, he said, was a serious legal error because “in private contracts, rights and obligations are exercised in self-interest, not in public interest.”
The Court found the award riddled with contradictions—acknowledging continuous breach and deceit yet denying consequences. The Judge stated:
“A party firmly found to have indulged in abject contumacious conduct appears to have been allowed to get away with no consequences whatsoever.”
He ruled that the arbitrator’s conclusion “victimised the victim” by holding that the injured investor was to blame for the wrongdoing of the other party, thereby undermining justice and commercial morality.
Further, the plea for partial setting aside was rejected, as the contradictory findings were “inextricably interwoven” and could not be surgically separated.
Conclusion
The Court set aside the arbitral award in entirety, holding it to be perverse, contradictory, and violative of Section 34(2)(b)(ii). It allowed both parties to re-arbitrate their disputes afresh, preserving the arbitration agreement. The Court refrained from imposing costs, leaving cost determination to the next tribunal.
Justice Sundaresan concluded:
“By treating a contractual right as a contractual obligation, the Impugned Award stands contrary to the contract itself and in conflict with the most basic notions of justice and morality.”
Implications
This judgment reinforces judicial vigilance against arbitral awards that distort contractual interpretation or deny relief despite proven breaches. It clarifies that commercial rights cannot be transformed into duties, and courts will intervene when arbitral findings subvert justice under the guise of limited review.
The ruling will guide future Section 34 challenges where contradictory findings or “victim blaming” interpretations arise in joint ventures and investor disputes.
FAQs
1. What did the Bombay High Court rule in this case?
The Court set aside the arbitral award for being perverse and self-contradictory, holding that treating rights as obligations violates fundamental notions of justice under Section 34 of the Arbitration Act.
2. Why did the Court find the arbitral award perverse?
Because the tribunal simultaneously found breaches, deceit, and continuing torts by one party but still denied relief to the aggrieved investor—an outcome no reasonable person could justify.3. What is the broader significance of this ruling?
It underscores that arbitral autonomy cannot shield irrational or unjust awards, and courts may intervene where awards shock the conscience or distort private contractual rights.
