Court’s decision
The Delhi High Court dismissed a petition under Section 34 of the Arbitration and Conciliation Act, 1996, filed by a government hospital and the Government of NCT of Delhi, and upheld an arbitral award granting over ₹7 crore with interest to a private security services contractor. The Court held that the arbitral award was based on a plausible appreciation of evidence and contractual terms, and did not suffer from patent illegality or violation of public policy. Reiterating the narrow scope of judicial interference under Section 34, the Court ruled that a public authority cannot withhold payment for services admittedly availed by raising belated procedural objections.
Court’s decision
Justice Jasmeet Singh affirmed the arbitral award dated 20.12.2016, which had directed payment of ₹6.87 crore towards pending bills and ₹32.82 lakh as refund of security deposit, along with interest. The Court found that the sole arbitrator had examined the contract, correspondence, and voluminous documents on record and arrived at a reasoned conclusion that the contractor had substantially complied with contractual obligations. Holding that the petitioners were effectively seeking re-appreciation of evidence, the Court dismissed the challenge as frivolous.
Facts
A government hospital in Rohini invited tenders for providing security services through trained manpower. The respondent contractor was awarded the contract to deploy 130 security guards and three supervisors. An agreement was executed in April 2011 containing detailed terms on deployment, wages, statutory compliances and dispute resolution through arbitration. The contract period was extended beyond the original term and continued till December 2014, given the essential nature of hospital security services. Disputes arose when the hospital withheld payments alleging non-submission of documents relating to wages, provident fund and insurance contributions, despite the contractor continuing to provide manpower.
Issues
The principal issue before the High Court was whether the arbitral award allowing the contractor’s claims for unpaid bills and refund of security deposit was liable to be set aside under Section 34 of the 1996 Act on grounds of patent illegality, perversity, or violation of public policy. A connected issue was whether alleged procedural lapses in documentation justified complete withholding of payment by the government after having continuously availed security services for several years.
Petitioners’ arguments
The government authorities argued that the arbitral award was contrary to the contract and public policy. They contended that the contractor failed to comply with mandatory contractual clauses requiring submission of police verification, deployment registers, proof of wage disbursement, and individualised EPF and ESI challans. It was submitted that the contractor raised inflated and arbitrary bills, submitted consolidated statutory challans incapable of verification, underpaid personnel, and failed to disburse wages through cheque or electronic transfer. The petitioners further argued that the arbitrator wrongly shifted the burden of proof on the government and ignored material discrepancies, rendering the award perverse and patently illegal.
Respondent’s arguments
The contractor opposed the petition, submitting that it had deployed the full sanctioned strength of security personnel throughout the contract period and that this fact was never disputed. It was argued that detailed bills, deployment records, statutory challans and supporting documents had been repeatedly submitted and were examined by the arbitrator. The respondent contended that the hospital continued to take benefit of uninterrupted security services but unjustifiably withheld payments, causing financial distress and affecting wages of security personnel. Emphasising the limited scope of Section 34, the contractor submitted that the petition was an impermissible attempt to re-argue facts and evidence.
Analysis of the law
The Court analysed the scope of interference under Section 34 of the Arbitration and Conciliation Act, reiterating that courts do not sit in appeal over arbitral awards. An award can be set aside only if it is contrary to fundamental policy of Indian law, patently illegal, or shocks the conscience of the court. Re-appreciation of evidence or substitution of the court’s view for that of the arbitrator is impermissible. The arbitrator is the master of the quality and quantity of evidence, and even an erroneous view on facts does not warrant interference unless it crosses the high statutory threshold.
Precedent analysis
The Court relied on recent Supreme Court jurisprudence emphasising minimal judicial intervention in arbitral matters and deference to arbitral findings. It reiterated that even if multiple views are possible, the court must uphold the arbitral award so long as the view taken is plausible and based on the contract. The judgment aligns with precedent cautioning courts against converting Section 34 proceedings into appellate review and against allowing public authorities to escape contractual liabilities through hyper-technical objections.
Court’s reasoning
On facts, the Court noted that there was no dispute that the contractor deployed the requisite number of security guards and supervisors and that the hospital enjoyed uninterrupted security services. The arbitrator had examined voluminous records, correspondence, and statutory documents and concluded that the contractor had substantially complied with contractual requirements. The Court held that alleged procedural irregularities, even if assumed, could not justify total non-payment after availing services for years. It found the arbitrator’s findings to be reasoned, balanced and well within jurisdiction, and rejected the government’s attempt to reopen factual disputes.
Conclusion
The Delhi High Court dismissed the Section 34 petition and upheld the arbitral award in favour of the contractor. It held that the award was neither patently illegal nor opposed to public policy and that the challenge was a clear attempt to delay payment of lawful dues. All pending applications were also dismissed.
Implications
This judgment reinforces judicial restraint in arbitral matters and sends a strong signal to government bodies that they cannot withhold contractual payments after enjoying services, merely by raising procedural objections at a belated stage. It underscores the sanctity of arbitral awards and the limited grounds available for challenge under Section 34. For contractors dealing with public authorities, the ruling provides reassurance that courts will protect legitimate arbitral outcomes from obstructionist litigation.
Case law references
- Scope of Section 34 review: Courts cannot re-appreciate evidence or act as appellate bodies over arbitral awards. Applied to dismiss the challenge.
- Public policy and patent illegality: Only awards that shock the conscience or violate fundamental legal principles can be set aside. Applied to uphold the award.
- Payment for services availed: A party that has enjoyed contractual services cannot withhold payment on technical grounds. Applied to reject the government’s defence.
FAQs
1. Can a court re-examine evidence in a Section 34 challenge?
No. Courts have a very limited role and cannot re-appreciate evidence or substitute their own factual findings.
2. Can government authorities withhold payment citing procedural lapses?
Not after availing services. Minor or disputed procedural issues do not justify complete non-payment for services rendered.
3. When will an arbitral award be set aside as patently illegal?
Only when the award violates fundamental legal principles, public policy, or is so unreasonable that it shocks the conscience of the court.