An arbitration award can be set aside if it is based on no evidence or shows patent illegality; the burden of proof lies on the respondent in counter claims.

ORDER

This original petition has been filed under Section 34(2)(b)(ii) & (2A) of the Arbitration and Conciliation Act, 1996 (for brevity, hereinafter referred to as “the Act”) against the award passed by the sole Arbitrator dated 25.01.2020.

2. The petitioner, who is the claimant, submitted a claim petition before the sole Arbitrator on the ground that they are engaged in the manufacture and supply of cylinders used for filling Liquified Petroleum Gas (LPG). The petitioner entered into a lease agreement on 27.07.2016 with the respondent and as per clause 2 of the lease agreement, the respondent must ensure the availability of funds for the manufacturing activities. The running expenses such as electricity, maintenance, etc., were to be borne by the respondent. As per clause 3 of the agreement, the consideration for the lease was to be adjusted from the profit and the respondent was permitted to use the registered office of the claimant at Chennai. The respondent had invested a sum of Rs.1,51,62,000/- in the business, which amount was mustered by the respondent from various third parties. The respondent defaulted in payment of their statutory dues by failing to honour the suppliers on time resulting in the piling of the unpaid bills. The petitioner was branded as a defaulter and it resulted in the stoppage of production on 15.01.2017.

3. The petitioner, by letter dated 16.03.2017, terminated the lease agreement. A criminal case came to be lodged by the respondent and the petitioner has come out with a case that nearly Rs.1,43,50,000/- was disbursed to various third parties, who had invested in the business after the termination of the lease agreement. While so, the Managing Director of the petitioner company was arrested in the course of investigation in Crime No.56 of 2017 and taking advantage of the same, blank cheques were obtained from the wife of the Managing Director.

4. The Managing Director of the petitioner company came out on bail and filed a suit in O.S.No.4355 of 2017 before the XI Assistant City Civil Court, Chennai seeking for an injunction against the respondent from encashing the blank cheques, which were obtained under coercion and threat.

5. The petitioner invoked the arbitration clause under the lease agreement dated 27.07.2016. A sole Arbitrator came to be appointed and the petitioner submitted the following claims before the sole Arbitrator:-

“a. Decree the claim against the respondent for a sum of Rs.3,88,46,317/- (Rupees Three crores eighty eight lakhs forty six thousand three hundred and seventeen rupees only);

b. Award interest on the aforesaid principal sum at 12% from the date of accrual of the cause of action i.e., on 16.03.2017 till the date of award and future interest at 18% from the date of award till the date of payment;

c. To award the costs of these proceedings as per Section 31-A of the Arbitration and Conciliation Act, 1996.”

6. The respondent refuted all the claims made by the petitioner and also made a counter claim for a sum of Rs.5,16,00,000/- and also a sum of Rs.2,00,00,000/- towards the mental agony.

7. The sole Arbitrator, on considering the rival claims, framed the following issues:-

“i) Whether the Respondent has committed breach of the lease agreement dated 27.06.2016?

ii) Whether the Respondent is due and liable to pay the Claimant a sum of Rs.3,88,46,370/- together with interest?

iii) Whether the Respondent is entitled to the counter claim of Rs.5,16,00,000/- as claimed?

iv) Whether the Respondent is entitled for compensation of Rs.2 crores towards mental agony as claimed?

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