Arbitrators cannot apply fundamental rights while granting arbitral awards: Calcutta High Court

The Calcutta High Court, while setting aside an arbitral award, has held that arbitrators cannot apply fundamental rights under the Constitution while granting arbitral awards [Chairman Board Of Trustees For Shyama Prasad Mookherjee Port Kolkata v. Universal Sea Port]..Justice Shekhar B Saraf said that in this case, considerations of discrimination and want of State functionaries to act in accordance with Article 14 of the Constitution swayed the arbitrator’s contractual interpretation."...arbitrators cannot apply the rights envisaged under the fundamental rights of the Constitution of India or equity while granting arbitral awards, and if they do, such awards must be set aside as being patently illegal under Section 34(2A) of the Act," the Court held..The petitioner had floated a tender for supply, operation and maintenance of various cargo handling equipment at the Kolkata Port Trust (KoPT). The tender was awarded to the respondent, following which the respondent entered into a ten-year long agreement at a contractual rate.Another tender was issued by the petitioner for similar work. However, due to unwillingness of contractors to work at the authorised rate, the base price was increased.Meanwhile, KoPT continued to pay the respondent the earlier agreed rate and chose not to revise it. The respondent felt itself to be in a disadvantageous position for being bound to provide the same services in similar conditions, but at a much lower price..Thus, arbitral proceedings were initiated and the award allowed a claim of over ₹8.5 crore by the respondent. The arbitrator discussed how State functionaries should not discriminate and ought to treat parties equally in terms of Article 14 of the Constitution..The petitioners contended that in the absence of specific clauses providing for escalation charges, the arbitrator cannot award any such amount. Further, it was argued that courts cannot re-write contractual terms by relying on Article 14 of the Constitution..The respondents, on the other hand, said that courts cannot interfere with arbitral awards merely on the grounds of erroneous application of law or re-appreciate evidence.It was vehemently argued by the respondents that the construction of a contract is for the arbitrator to decide, unless it is absolutely unreasonable and it shocks the conscience of the appellate court..The Court at the outset noted,"The arbitrator is the ultimate authority of law and facts. The symphony of an award can be composed by different notes of contractual interpretation and trade usages, however, the tunes of trade usages cannot deafen or drown out the chords of univocal understanding between the parties."Justice Saraf found that while legislative mandate and judicial pronouncements have granted an arbitrator a wide mandate to flirt around with interpretation of facts and law, such flirtations are to be rejected when met with resistance from the unequivocal understanding between the parties..Further, it was noted that a unilateral alteration of an agreement was being forced upon an unwilling party.“It is an exceptional case wherein the conscience of the court is shocked at the conduct of the Arbitrator.”.The Court concluded that the agreement was for a long term, which clearly took into regard and mitigated the risk of price fluctuation. Therefore, the arbitrator could not have applied constitutional rights or principles of equity to grant relief. It thus held,“I am inclined to hold that the interpretation made by the arbitrator is one that no reasonable or fair minded person could have reached. The Award is patently illegal and liable to be set aside as provided for under Section 34(2A) of the Act.".Senior Advocate Abhrajit Mitra and Advocates Pranit Bag, Snehashis Sen, Abhishek Banerjee, Aditya Sarkar, and Sourav Ghosh appeared for the petitioners. The respondents were represented by Senior Advocate Ratnanko Banerji and Advocates Vidushi Chokhani, Vikram Wadehra, Nupur Rathi, Raunak Bose and A Sen..[Read Judgment]