The Delhi High Court has reaffirmed that arbitral awards cannot be set aside merely due to alleged factual errors or non-compliance with contractual formalities, unless the challenge demonstrates a violation of public policy or patent illegality. The judgment underscores the limited judicial review permitted under Section 34 of the Arbitration and Conciliation Act, 1996, and reinforces the principle that the burden of disproving contractual compliance rests squarely on the party challenging the award.
Background & Facts
The Dispute
The dispute arose from a contract between the Government of NCT of Delhi, through Dr. Baba Saheb Ambedkar Hospital, and M/s. Gaurav Enterprises for the provision of security services. The contract, executed on 28.04.2011, required the respondent to deploy 130 security guards and 3 supervisors for two years, with provisions for extension. Clause 58 of the Terms and Conditions of Contract (TCC) mandated arbitration for disputes, governed by the 1996 Act.
Procedural History
- 28.04.2011: Contract executed with detailed obligations on documentation, wage disbursement, and statutory compliance.
- 2011 - 2014: Petitioner repeatedly requested submission of ESI/EPF challans, police verification reports, attendance registers, and wage payment proofs.
- 2015: Respondent filed Arbitration Petition No. 78/2015 under Section 11 seeking appointment of arbitrator.
- 21.12.2015: Sole Arbitrator appointed by the Delhi High Court.
- 20.12.2016: Arbitrator awarded Rs. 6.87 crore in pending bills and Rs. 3.28 crore as security deposit refund, with interest.
- 2017: Petitioner filed O.M.P. (Comm) 221/2017 under Section 34 to set aside the award.
Relief Sought
The petitioners sought to set aside the arbitral award on grounds of alleged non-compliance with contractual clauses, misapplication of evidence law, and failure to prove wage disbursement and statutory contributions. They contended the award was contrary to public policy and patently illegal under Section 34 of the 1996 Act.
The Legal Issue
The central question was whether the failure of a party to rebut documentary evidence submitted by the contractor, after repeated opportunities, justifies setting aside an arbitral award under Section 34 of the Arbitration and Conciliation Act, 1996, solely on the basis of alleged contractual breaches.
Arguments Presented
For the Petitioners
The petitioners argued that the respondent failed to comply with multiple contractual obligations under Clauses 4, 5, 23, 54, and 55 of the TCC, including: failure to submit individualized EPF/ESI challans, absence of police verification reports, non-submission of attendance registers countersigned by department officials, and payment of wages in cash instead of ECS/cheque. They contended that the arbitrator erred in placing the burden of proof on them to disprove the respondent’s submissions, violating Section 101 of the Indian Evidence Act. They cited discrepancies in wage calculations and inflated EPF/ESI claims as evidence of fraud.
For the Respondent
The respondent argued that it had submitted voluminous documentation - four volumes of bills, attendance rosters, EPF/ESI challans, and personnel lists - demonstrating compliance. It emphasized that the petitioner had ample opportunity to contradict these documents but failed to do so. The respondent relied on the arbitrator’s finding that the burden shifted to the petitioner to rebut the evidence, and that mere allegations without documentary contradiction could not invalidate an award.
The Court's Analysis
The Delhi High Court emphasized the narrow scope of judicial review under Section 34 of the 1996 Act, citing Ramesh Kumar Jain v. Bharat Aluminium Co. Ltd. to hold that courts cannot act as appellate forums or re-appreciate evidence. The Court observed that an arbitral award may be set aside only if it violates the fundamental policy of Indian law, is patently illegal, or shocks the conscience of the court.
"All these papers were on record and since the respondent did not file any contradiction, the burden lies on the respondent to rebut these allegations."
The Court noted that the arbitrator had meticulously reviewed all documents submitted by the respondent, including month-wise shift rosters, consolidated and individualized challans, and personnel lists. Despite repeated reminders and a specific court order dated 03.03.2015 directing the petitioner to examine and point out deficiencies, no specific contradiction was filed. The Court held that the arbitrator’s allocation of burden was consistent with Section 101 of the Evidence Act: the party asserting a fact must prove it, and where evidence is submitted, the opposing party must rebut it.
The Court rejected the petitioners’ claims of inflated bills and underpayment, noting that isolated anomalies in individual cases could not invalidate the entire contract performance. The arbitrator had found no evidence of systemic fraud or non-performance of core obligations - security personnel were deployed, services rendered, and no termination occurred. The Court concluded that the arbitrator’s findings were plausible, well-reasoned, and within the bounds of the agreement.
The Verdict
The petitioners’ challenge failed. The Delhi High Court dismissed the petition under Section 34, upholding the arbitral award. The Court held that the burden of disproving contractual compliance rests on the party challenging the award, and mere allegations without documentary rebuttal cannot justify setting aside an arbitral award. The award was found to be neither contrary to public policy nor patently illegal.
What This Means For Similar Cases
Burden of Proof Shifts Upon Submission of Documentary Evidence
- Practitioners must now treat the submission of voluminous, organized documentary evidence by a contractor as a prima facie case of compliance.
- Any challenge must be supported by specific, documented rebuttals - not general assertions or hypothetical inconsistencies.
- Failure to file a formal contradiction during arbitration bars later challenges under Section 34 on the same grounds.
Arbitrators Are Masters of Evidence; Courts Will Not Re-Appreciate Facts
- Courts will not interfere merely because an award appears unreasonable or based on limited evidence.
- Even if the court would have reached a different conclusion, the arbitrator’s view prevails if it is plausible and grounded in the record.
- Alleged discrepancies in individual payroll entries do not constitute patent illegality unless systemic fraud is proven.
Contractual Non-Compliance Must Be Proven, Not Alleged
- Parties cannot withhold payments indefinitely on speculative grounds of non-compliance.
- If a party claims breach of clauses (e.g., wage disbursement, EPF/ESI), it must produce evidence of non-compliance - not rely on the other party’s failure to prove compliance.
- The principle that "services rendered must be paid for" overrides technical defaults unless they directly undermine the contract’s essence.
