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Arbitral Award Based on Accord & Satisfaction Set Aside Under S.34 Arbitration Act for Lack of Evidentiary Support: Delhi HC
New Delhi: The Delhi High Court has set aside an arbitral award that dismissed a contractor's claims against Indian Oil Corporation Limited (IOCL) on the ground of 'accord and satisfaction' (full and final settlement), finding that the arbitrator's conclusion was based on no evidence.
Justice Prateek Jalan, presiding over a petition filed by M/S. Fiberfill Engineers under Section 34 of the Arbitration and Conciliation Act, 1996, held that the arbitrator failed to adjudicate the claims on merits after erroneously concluding that they were discharged by way of full and final settlement.
Background of the Dispute
The dispute arose under three contracts dated 30.01.2009 between Fiberfill Engineers (Petitioner) and IOCL (Respondent) for the supply, installation, and commissioning of Retail Visual Identity Elements across the country. Fiberfill Engineers raised claims of approximately Rs. 8.1 crores, citing delays in execution, seeking refund of liquidated damages deducted, loss of business opportunity, and price escalation.
The core of the controversy centered on whether the petitioner's claims had been settled. The arbitrator relied on 'Service Entry Sheets' (SESs) and certain 'No Claim/No Due Certificates' signed by the parties as evidence of accord and satisfaction, despite the admitted position that no formal 'No Dues Certificate' for the entire contract or a final bill was prepared.
High Court's Examination and Key Issues
The High Court scrutinized the documents relied upon by the arbitrator. A key point of contention was the timing of signing the SESs and certificates. While the arbitrator concluded these were signed after payment, the Court noted that the respondent presented no evidence to support this. Conversely, evidence suggested these documents, particularly the SESs, were generated and signed *prior* to payments being released and prior to unilateral deductions (such as liquidated damages) being applied by IOCL.
The Court highlighted that the petitioner's case was that amounts were deducted unilaterally *after* the submission of bills and signing of SESs. The arbitrator had noted this contention but failed to adjudicate it, which the Court found to be a "fundamental issue which goes to the root of the matter."
Respondent's Inconsistent Positions
Justice Jalan noted the "unfortunate and repeated prevarication" in IOCL's stand throughout the proceedings. Before the High Court in Section 11 proceedings (for arbitrator appointment), IOCL claimed formal 'No Due Certificates' were signed. This was abandoned before the arbitrator, where reliance shifted to SESs and No Claim Certificates. In the Section 34 proceedings before the High Court, IOCL introduced the contention that additional sheets showing petitioner's concurrence to deductions were part of the SESs and were placed before the arbitrator, a claim later admitted to be incorrect except for a single instance involving a minor deduction.
Court's Finding on Lack of Evidence
The Court concluded that IOCL "had not placed any evidence before the learned Arbitrator to demonstrate that any amount of full and final settlement had been accepted by the petitioner after calculation of liquidated damages, that payment had been made of the amount so settled, or any certificate of full and final settlement was signed by the petitioner after accepting payment."
Legal Basis for Setting Aside the Award
Citing Supreme Court judgments in *Associate Builders v. DDA*, *Ssangyong Engg. & Construction Co. Ltd. v. NHAI*, and *Delhi Airport Metro Express (P) Ltd. v. DMRC*, the High Court reiterated that an arbitral award based on no evidence, or arrived at by ignoring vital evidence, is perverse and can be set aside under Section 34(2A) on the ground of patent illegality. The present case, the Court found, fell squarely within this exception, as the finding of accord and satisfaction lacked any evidentiary basis.
Decision and Implications
The Delhi High Court allowed the petition under Section 34 and set aside the arbitral award dated 13.08.2020. The parties have been granted liberty to agitate their claims and counterclaims afresh in accordance with law.
The Court also imposed costs of Rs. 1 lakh on IOCL, noting its failure in the petition and its unjustifiably contrary stands taken at various points in the proceedings. While a Section 340 CrPC application was filed by the petitioner concerning the respondent's affidavit, the Court declined to initiate proceedings under it but emphasized the expectation that litigants file affidavits after due verification.
The judgment underscores the critical importance of a strong evidentiary foundation for arbitral findings, particularly concerning affirmative defenses like accord and satisfaction, and highlights the consequences of inconsistent litigative stands.
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