No Arbitral Award can be passed against the Fundamental Policy of Indian Laws

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A bench of Justice S.C. Gupte of the Bombay High Court in the case of Jackie Kukubhai Shroff v. Ratnam Sudesh Iyer reiterated the judicial principle that while awarding an arbitral award, the morality and the fundamental policy of the Indian laws should not be tampered. Jackie Kukubhai Shroff (“Petitioner”) and Ratnam Sudesh Iyer (“Respondent”) were shareholders in an Indian company named Atlas Equipfin Pvt. Ltd. (“Atlas”). That on December 31st, 1994, Petitioner along with the wife of the Respondent entered into a joint venture and shareholders’ agreement to carry on business of an investment through Atlas to collaborate with Sony for production, acquisition and export of television software, in which Atlas would own 25% equity. In terms of this joint venture agreement, the parties subscribed to shareholding and Petitioner claims to have subscribed to 10% shares in Atlas. In 2005-2006, upon disputes and differences arising between the parties, concerning irregularities in day to day management and affairs of Atlas, the Petitioner filed a company petition in the Company Law Board under Sections 397 and 398 of the Companies Act, 1956. But the said petition was withdrawn after other shareholders in Atlas assured Petitioner that his interests would be protected.
As the management and the transfer of rightful dues through escrow cheques were not taking place properly, therefore the Respondent decided to file an Arbitration Petition in the Court, invoking Section 9 of the Arbitration and Conciliation Act, 1996 (“Act”). The Respondent prayed for an interim injunction against release of the undated escrow cheque of USD 2,000,000 by the escrow agent. On November 10th, 2014, the learned Arbitrator passed an award stating that the Petitioner had committed breach of the deed of settlement and awarded damages of USD 3.5 million to the Respondent. Aggrieved by the order of Arbitrator, Petitioner challenged the order before the Hon’ble Bombay High Court.
After hearing the Counsel of both the sides, the Hon’ble High Court held that the award passed by the sole arbitrator did not measure up to the minimal judicial scrutiny even within the parameters of Section 34 of the Act. Hon’ble Court also stated that award passed by the Arbitrator shocks the conscience of the court and nullifies the purpose of arbitration as it is based on conclusions which no fair or judiciously minded person could have decided. The Petitioner, thus, succeeded and the impugned award was set aside.

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