Supreme Court Upholds Arbitration Award in Commercial Dispute Between Business Partners

The case of M/S Arun Kumar Kamal Kumar & Ors. vs. M/S Selected Marble Home & Ors. is a significant ruling by the Supreme Court of India that reaffirms the binding nature of arbitration awards in commercial disputes. The Court upheld an arbitration award that resolved a dispute between business partners over the operation of a restaurant and sweets shop under the brand name ‘Nathu’s Sweets.’

The judgment highlights the limited scope of judicial interference in arbitration proceedings, reinforcing that arbitration awards can only be set aside on narrow grounds as prescribed under the Arbitration and Conciliation Act, 1996.

Background of the Case

The appellants, M/S Arun Kumar Kamal Kumar and its partners, entered into two separate license agreements in 1990 with the respondents, M/S Selected Marble Home and its partners, to operate a restaurant and sweets shop in premises owned by the respondents.

Key provisions of the agreements:

• The appellants were to pay the respondents a commission based on gross sales.
• The agreements stipulated that in case of a dispute, the premises had to be vacated.
• The agreements did not contain an explicit provision for damages.

Disputes arose between the parties soon after the commencement of business. The appellants alleged that the respondents obstructed operations by failing to provide sufficient electricity supply, resulting in business closure between March 1991 and October 1995.

Legal Dispute and Arbitration Proceedings

The respondents initiated legal proceedings for non-payment of commission and failure to vacate the premises. The Delhi High Court referred the dispute to arbitration under the Arbitration Act, 1940.

Key issues before the arbitrator:

• Whether the appellants were liable for damages for retaining possession without operating the business.
• Whether the respondents had obstructed business operations.
• The quantum of damages payable.

The arbitrator ruled:

• The appellants were liable to pay damages for unauthorized retention of premises.
• Damages were calculated based on past commission payments.
• Electricity expenses incurred due to the use of a generator were the appellants’ responsibility.

Challenges Before the Delhi High Court

The appellants challenged the award before the Delhi High Court, arguing:

• The agreements did not provide for damages.
• The calculation of damages was incorrect as sales tax and utility expenses were not deducted properly.
• The arbitrator exceeded jurisdiction in awarding damages.

The Delhi High Court upheld the arbitration award but reduced the post-award interest rate from 16% to 9% per annum, subject to payment of the decretal amount by June 30, 2010.

Arguments Before the Supreme Court

Appellants’ Arguments

The appellants, represented by senior advocate Rakesh K. Khanna, contended:

• There was no contractual obligation to pay damages.
• The arbitrator erroneously treated the agreements as license agreements instead of commission-based contracts.
• The damages calculation included incorrect deductions.
• The High Court erred in upholding the award.

Respondents’ Arguments

The respondents countered:

• The appellants retained possession without operating the business, causing financial loss.
• The arbitrator relied on the appellants’ own financial statements.
• The High Court had already provided relief by reducing the interest rate.

Supreme Court’s Observations and Judgment

The Supreme Court, in a ruling authored by N.V. Ramana, S. Abdul Nazeer, and Surya Kant, made the following key observations:

• Binding Nature of Arbitration Awards: Courts cannot reappreciate evidence or revisit findings of fact unless there is patent illegality.
• Damages Calculation Justified: The arbitrator used the appellants’ financial records to determine damages, which were accepted without objection during arbitration.
• Electricity Expenses Not Grounds for Setting Aside the Award: The appellants’ claim that generator expenses should have been deducted differently was an afterthought.
• Limited Scope for Judicial Review: The findings of the arbitrator and High Court were based on reasonable interpretations of contractual terms.

Final Judgment

The Supreme Court ruled:

• The appeal was dismissed.
• The Delhi High Court’s order was upheld, including the reduction of interest from 16% to 9% per annum.
• The appellants were required to pay the full decretal amount by December 31, 2020, failing which the original arbitration award with 16% interest would apply.

Conclusion

This judgment reinforces the principle that arbitration awards are binding and courts have a limited role in reviewing them. The Supreme Court’s decision ensures that commercial disputes resolved through arbitration are not unnecessarily prolonged by judicial intervention. The ruling upholds contractual obligations and prevents frivolous challenges to arbitration awards.

Petitioner Name: M/S Arun Kumar Kamal Kumar & Ors..
Respondent Name: M/S Selected Marble Home & Ors..
Judgment By: Justice N.V. Ramana, Justice S. Abdul Nazeer, Justice Surya Kant.
Place Of Incident: New Delhi.
Judgment Date: 01-10-2020.

Don’t miss out on the full details! Download the complete judgment in PDF format below and gain valuable insights instantly!

Download Judgment: MS Arun Kumar Kamal vs MS Selected Marble Supreme Court of India Judgment Dated 01-10-2020.pdf

Direct Downlaod Judgment: Direct downlaod this Judgment

See all petitions in Arbitration Awards
See all petitions in Contract Disputes
See all petitions in Judgment by N.V. Ramana
See all petitions in Judgment by S. Abdul Nazeer
See all petitions in Judgment by Surya Kant
See all petitions in dismissed
See all petitions in supreme court of India judgments October 2020
See all petitions in 2020 judgments

See all posts in Arbitration and Alternate Dispute Resolution Category
See all allowed petitions in Arbitration and Alternate Dispute Resolution Category
See all Dismissed petitions in Arbitration and Alternate Dispute Resolution Category
See all partially allowed petitions in Arbitration and Alternate Dispute Resolution Category