Section 34 Arbitration And Conciliation Act | Court Cannot Re-appreciate Evidence, But Award Lacking Reasoning And Basis Is Patently Illegal: Calcutta High Court

"An award whose operative directions do not match its own findings is not intelligible." Calcutta High Court, in a significant ruling dated October 6, 2026, held that while a court under Section 34 of the Arbitration and Conciliation Act, 1996 does not sit in appeal to re-appreciate evidence, an arbitral award that ignores vital evidence, lacks proper reasoning, or exhibits contradictions between findings and the operative portion is patently illegal and liable to be set aside.

A Division Bench comprising Justice Debangsu Basak and Justice Aryak Dutt observed that an award failing to address the fundamental terms of the contract violates the mandate of Section 28(3) of the Act.

The dispute arose between Friends Engineering Co-operative Society Limited and the Digha Shankarpur Development Authority (DSDA) regarding the termination of a Memorandum of Understanding for a market complex construction project. The DSDA cancelled the agreement citing Coastal Regulation Zone (CRZ) norms and procedural irregularities, leading the claimant to invoke arbitration. The learned sole arbitrator initially held the termination illegal and awarded various heads of damages. The District Judge later set aside this award, prompting the current appeal before the High Court.

The primary questions before the court were whether the District Judge exceeded the scope of Section 34 by re-appreciating expert evidence, and whether the arbitral award itself suffered from patent illegality, perversity, and a lack of intelligible reasoning sufficient to warrant its nullification.

Court Rejects Re-appreciation of Evidence

The High Court clarified that the court below erred by substituting its own assessment of the expert report for that of the arbitrator. The expert was appointed under Section 26 of the Act at the parties' joint suggestion, and the tribunal’s evaluation of his findings represented a "possible view." Because the arbitrator is the master of the quantity and quality of evidence, his findings on technical facts should generally remain undisturbed under the limited scope of Section 34.

Tribunal Must Decide Per Contract Terms

The Bench highlighted a critical flaw in the arbitrator's approach: the award treated the MOU as a standard works contract where the price was payable by the employer, despite the contract's clause stipulating that the builder would recover costs from third-party stall buyers. By failing to adjudicate upon the essential nature of this contract, the tribunal disregarded Section 28(3) of the Act. The Court noted that an award must be reasoned, intelligible, and reflect a proper application of the contract's specific terms.

"The award does not decide the dispute in accordance with the terms of the contract. An award that is silent on such a question is not reasoned within Dyna Technologies (supra), and is patently illegal for disregarding of Section 28(3) as it then stood."

Absence of Evidence for Damages

Regarding the claim for loss of profit, the Court underscored that there is no "inflexible rule" that 15% of the unexecuted value is automatically payable in every termination case. Citing Unibros v. All India Radio and Batliboi Environmental Engineers Ltd., the Court observed that a claim for loss of profit must be supported by material evidence. In the present case, the tribunal relied on presumptions rather than proof, awarding damages for materials and labor advances without any evidentiary basis.

"It does not permit a Tribunal to presume the existence of a loss for which there is no evidence."

Operative Contradictions and Lack of Intelligibility

The Bench further noted that the award was riddled with internal contradictions. The sums awarded in the body of the award often differed from those in the operative part, and specific claims allowed in reasoning were omitted from the final order. Such inconsistencies render an award unintelligible and perverse, falling squarely within the category of patent illegality as established in Associate Builders v. Delhi Development Authority. Consequently, the Court set aside the arbitral award in its entirety, excluding the interim award that had already been satisfied by consent.

Date of Decision: 06 October 2026