An arbitral award cannot alter the terms and conditions of a valid contract: Delhi High Court

In a significant ruling, the Delhi High Court has dismissed an appeal against the setting aside of an arbitral award, emphasizing the importance of adhering to the terms of the contract in arbitration proceedings. The judgment, pronounced on December 20, 2023, by a bench comprising Justice Suresh Kumar Kait and Justice Shalinder Kaur, reaffirms the sanctity of contractual obligations in arbitration disputes.

The case, FAO(OS) (COMM) 68/2017, Involved a dispute between M/s Rocks Buildcon Pvt Ltd & Anr. (Appellants) and Ram Kishan Singh (Respondent) over a brokerage agreement related to a land transaction in Goa. The appellants challenged the Single Judge’s decision to set aside an arbitral award that had originally dismissed the respondent’s claim for a brokerage fee and the appellants’ counterclaim.

Justice Shalinder Kaur, in her judgment, underscored the significance of contract terms in arbitration, stating, “An arbitral award cannot alter the terms and conditions of a valid contract consciously executed between the parties. In case an arbitrator travels beyond the contract, he would be acting without jurisdiction.” This observation formed the crux of the court’s decision, highlighting the arbitrator’s deviation from the contractual terms as a key factor in setting aside the award.

The appellants argued that the Single Judge had Incorrectly interpreted the brokerage agreement and exceeded the scope of Section 34 of the Arbitration and Conciliation Act, 1996. Conversely, the respondent contended that the Arbitrator had created a scenario not stipulated in the agreement, thereby acting beyond jurisdiction.

The High Court, after a detailed examination of the brokerage agreement and the arguments presented, concluded that the Arbitral Tribunal had misconstrued the terms of the agreement, leading to a perverse finding. The court upheld the Single Judge’s decision, noting that the respondent had fulfilled his obligations under the agreement and was wrongly denied the brokerage fee.

This ruling serves as a significant reminder of the limitations of arbitral tribunals in deviating from the express terms of a contract and reinforces the principle that arbitrators must operate within the confines of the contractual obligations agreed upon by the parties.

The appeal was dismissed, with the court affirming the decision to set aside the original arbitral award and granting liberty to the respondent to seek fresh arbitration in accordance with the law. This judgment is expected to have a substantial impact on the interpretation of contracts in arbitration proceedings.

Date of Decision : December 20, 2023

M/S ROCKS BUILDCON PVT LTD & ANR. VS RAM KISHAN SINGH