Decision cited:

In ONGC v/s Western Geco International Ltd (2014)9 SCC 263 the Apex Court brought out clearly that “.......while determining the rights and obligations of parties before it, do so in accordance with the principles of natural justice. Besides the celebrated audi alteram partem rule one of the facets of the principles of natural justice is that the court/authority deciding the matter must apply its mind to the attendant facts and circumstances while taking a view one way or the other. Non-application of mind is a defect that is fatal to any adjudication. Application of mind is best demonstrated by disclosure of the mind and disclosure of mind is best done by recording reasons in support of the decision which the court or authority is taking. The requirement that an adjudicatory authority must apply its mind is, in that view, so deeply embedded in our jurisprudence that it can be described as a fundamental policy of Indian law.”

In Excise and Taxation Officer-cum- Assessing Authority v. Gopi Nath and Sons 1992 Supp (2) SCC 312, it was held:(SCC p. 317, para 7) 7. “… It is, no doubt, true that if a finding of fact is arrived at by ignoring or excluding relevant material or by taking into consideration irrelevant material or if the finding so outrageously defies logic as to suffer from the vice of irrationality incurring the blame of being perverse, then, the finding is rendered infirm in law."

In Rashtriya Ispat Nigam Ltd. v. Dewan Chand Ram Saran (2012) 5 SCC 306, the Court held:(SCC pp. 320-21, paras 43-45) "43. In any case, assuming that Clause 9.3 was capable of two interpretations, the view taken by the arbitrator was clearly a possible if not a plausible one. It is not possible to say that the arbitrator had travelled outside his jurisdiction, or that the view taken by him was against the terms of contract. That being the position, the High Court had no reason to interfere with the award and substitute its view in place of the interpretation accepted by the arbitrator. In para 44 The legal position in this behalf has been summarised in para 18 of the judgment of this Court in SAIL v. Gupta Brother Steel Tubes Ltd (2009) 10 SCC 63:(2009) 4 SCC (Civ) 16. and which has been referred to above. Similar view has been taken later in Sumitomo Heavy Industries Ltd. v. ONGC Ltd (2010) 11 SCC 296:(2020) 4 SCC (Civ) 459. to which one of us (Gokhale, J.) was a party. The observations in para 43 thereof are instructive in this behalf.”45. This para 43 reads as follows: (Sumitomo case, SCC p. 313) Also held by Mumbai Hight Court in Kwality Mfg. Corporation v. Central Warehousing Corporation (2009) 5 SCC 142 the Court while considering challenge to arbitral award does not sit in appeal over the findings and decision of the arbitrator, which is what the High Court has practically done in this matter. The umpire is legitimately entitled to take the view which he holds to be the correct one after considering the material before him and after interpreting the provisions of the agreement. If he does so, the decision of the umpire has to be accepted as final and binding."

Acelegal Analysis:

1. While passing any award the arbitrator shall apply his mind in such a direction and view that his award shall not affect the fundamental policy of Indian law. The award must have valid reasons supporting his view and ideology in passing such award in accordance with law. 

2. That the decision of arbitrator require explanation of;

    a. finding based on no evidence or,

     b. an arbitral tribunal takes into account something irrelevant to the decision which it arrives at or;

    c. ignores vital evidence in arriving at its decision.

3. That is the Award made by the arbitrator shall not be against the morality and arbitrator must have sensed right and wrong while passing such award.

 4. An arbitral tribunal must decide in accordance with the terms of the contract, but if an arbitrator construes a term of the contract in a reasonable manner, it will not mean that the award can be set aside on this ground. Construction of the terms of a contract is primarily for an arbitrator to decide unless the arbitrator construes the contract in such a way that it could be said to be something that no fair minded or reasonable person could do

Facts of the case:

Kumar Pathak (“Pathak”) is the sole proprietor of Big Screen Entertainment and is a film producer. On 05^th of May, 2009 Film Production Agreement ("FPA") was executed between Cinema Capital Venture Fund ("CCVF") and Kumar Pathak. As per terms of Agreement CCVF was required to bring in capital for film production. There were other mutual obligations as well. Clause 14 of the FPA allowed reciprocal termination rights and the first of the sub-clauses allowed for termination for cause, if the other party breached the agreement and failed to cure such breach within 15 days. Passing quickly over some of the intervening events, Pathak claimed until as late as 27th June 2010 that CCVF was in breach of its obligations and did not release an additional Rs.9.5 crores at the very least. Notices dated 7th April 2010 and 10th/11th May 2010,was send by Pathak through his advocate to terminate the FPA inter alia on the ground that Kinesis/CCVF had not fulfilled its obligations under that Agreement. Thereafter, film was released on 15th October 2010 under the title Aakrosh. Contrary to discussions perhaps this set out to be a serious film rather than one lighter in tone (described as "an action comedy"). Aakrosh received only an Adult or A certification from the Film Certification Board. Pathak contends that the commercial failure of the film is almost entirely due to CCVF failure to put additional money into the project as, according to him, the FPA required it to do.

Thereafter learned sole Arbitrator was appointed after an application was made to Court under Section 11 of the Arbitration Act. Once he entered on the reference, CCVF filed its statement of claim seeking a refund of its advance of Rs.4.5 crores with interest at 18% aggregating to Rs.5,80,51,232.88. There was a further claim for loss of interest. Pathak replied, disputing his liability. He also filed a Counter Claim in which he said that the disbursement of timely cash flow was critical to the FPA. CCVF paid no more than two installments. This forced Pathak to seek funding elsewhere. The total project cost increased and the film itself made far less than its production cost, returning an upfront project loss of Rs.8,04,09,128/-.The finding on facts and evidence by the learned sole Arbitrator is that it was Pathak who was in breach of his obligations to FPA, and not CCVF. It is on that basis that the Award was made.  

The Award was passed on 15/06/2017 by Sole Arbitrator on considering it;

(a) The Respondent shall pay to the Claimant the sum of Rs.4.5 cores together with simple interest at the rate of 18% per annum on the amounts advanced from time to time computed at Rs.1,30,51,232.88 up to 24th September 2014.

the finding so outrageously defies logic as to suffer from the vice of irrationality incurring the blame of being perverse, then, the finding is rendered infirm in law."

(b) The entire amount of Rs.5,80,51,232.88 shall continue to carry simple interest at the rate of 18% from 24th September 2014 up to the date of the Award and thereafter until payment or realization thereof.

Counter to same Arbitration Petition was filed by Pathak.

Issues before High Court of Judicature at Bombay:

1. Whether the suit maintainable under section 34 of Arbitration and Conciliation Act ?

2. Whether there is violation of any Fundamental Policy ?

High Court of Judicature at Bombay Verdict:

1. It is clear from the Petition that no part of the challenge falls under Section 34(2)(a) or Section 34(2)(b)(i) of the Arbitration Act.

2. The Court do not think Award in itself furnishes a ground for interference as being contrary to public policy and that, as court has seen only statutory provision under which the Petition is mounted.