Allahabad High Court Partly Allows Appeal, Modifies Arbitral Award by Severing Two Claims

A Division Bench of the Allahabad High Court, comprising Chief Justice Arun Bhansali and Justice Jaspreet Singh, heard an appeal under Section 37 of the Arbitration and Conciliation Act, 1996 by the Sanjay Gandhi Post Graduate Institute of Medical Sciences (SGPGI) challenging the Commercial Court, Lucknow’s dismissal of its Section 34 petition and the consequent confirmation of an arbitral award dated 20.08.2020 in favour of M/s Trishul Enterprises.

The Court partly allowed the appeal and modified the award by disallowing two heads of relief while preserving the remaining portions. The High Court held that the Sole Arbitrator exceeded jurisdiction by entertaining claims that related to a separate contract which was never referred to arbitration and that the arbitrator misread the contractual allocation of statutory labour liabilities. The Court observed that the arbitrator must remain within the terms of the contract and reference. The Court, in its reasoning, observed: "It is now too well settled to be disputed that the Arbitrator is a creature of the contract and it can only adjudicate such disputes which are referred to it by the parties. It is not open for the Sole Arbitrator to travel beyond the terms of the contract or terms of the reference." The Bench further relied on the Supreme Court’s guidance on limited power to modify awards and applied the doctrine of severability to preserve the valid parts of the award.

Background

The dispute arose from a landscaping maintenance agreement dated 16.04.2008 (Contract No.1 of 2007-2008) between SGPGI and M/s Trishul Enterprises for a three-year period, containing Clause 27 (arbitration). Trishul contended that SGPGI withheld security money of Rs.6,12,000 and advanced other claims including reimbursement of Employee Provident Fund (EPF) contributions, penalty deductions and payments for diesel and rate escalations. Proceedings began with Writ Petition No.10358 (M/B) of 2015 seeking appointment of an arbitrator; the Division Bench disposed the writ on 06.11.2015 directing Trishul to submit claims to the arbitrator. A first arbitrator was appointed but retired; on an S.11 petition a fresh arbitrator was appointed in March 2019 and the arbitral tribunal issued an award on 20.08.2020 allowing several claims in part.

SGPGI challenged the award under Section 34 before the Commercial Court, Lucknow, which dismissed the challenge on 29.11.2023. In the present appeal under Section 37, SGPGI raised three principal grounds: (i) the arbitrator awarded refund of security deposit of Rs.6,12,000 that pertained to a later contract (Contract No.107 of 2013-2014) and not to Contract No.1 of 2007-2008; (ii) the arbitrator erred in awarding EPF contribution reimbursement despite contractual clauses placing statutory compliance on the contractor; and (iii) the arbitrator wrongly set aside lawful penalty deductions. Trishul contended that the security claim was consistently pursued from inception, that the institute never objected to the claim’s inclusion, and that pleadings and bid documents supported entitlement to EPF reimbursement.

The High Court examined the record and found it undisputed that two separate contracts existed and that the security deposit of Rs.6,12,000 related to the second contract (Contract No.107 of 2013-2014), which was never made the subject of the arbitration reference arising from Contract No.1 of 2007-2008. The Court noted the arbitral reference and pleadings related solely to Contract No.1 and reproduced the defence plea which expressly denied any claim under Contract No.107. The Court further examined contract clauses and found they expressly made the contractor solely responsible for workers and statutory compliances: "The workers of the CONTRACTOR shall not be treated as employees of the Institute ... The CONTRACTOR will have to abide by the Minimum Wages Act and the other statutory labour laws ..." The Bench concluded the arbitrator had travelled beyond the terms of the contract and reference, attracting the ground of patent illegality. Applying the Supreme Court’s authority on modification and severability of awards, the Court disallowed the EPF reimbursement of Rs.6,17,629 (with interest) and the refund of Rs.6,12,000 (with bill of Rs.9,456 and interest), and preserved the rest of the award. The appeal was partly allowed and there was no order as to costs. The Court granted liberty to the respondent to press claims relating to Contract No.107 of 2013-2014 before an appropriate forum.

Case Details: Case No.: ARPL No.5 of 2024 Case Title: Sanjay Gandhi Post Graduate Institute of Medical Science, Lucknow through Director v. M/s Trishul Enterprises through Partner Mr. Ashish Gupta Appearances: For the Petitioner(s): Pritish Kumar (Senior Counsel), Shubham Tripathi For the Respondent(s): Ashish Gupta (in Person)